As a home buyer, it is important to know how much your closing costs will be on closing day.
What are closing costs?
Financing a home isn’t as simple as having just the down payment. There are some costs associated with the purchase too. In the industry we call these ‘closing costs’. We talk about these costs like they’re one lump sum, but in reality closing costs are made up of a series of lending fees, title fees and prepaid escrows for taxes and insurance. Whew! That’s a lot of fees. It’s no wonder the industry has dubbed all of these ‘closing costs’. It’s easier, and less scary to talk about them as one thing.
So, just how much are closing costs?
The quick answer is that it depends! Here’s what we can tell you.
Closing costs will likely range from 1%-3% of the purchase price. Your lender will actually serve as your best resource for helping you determine where yours will fall within that range.
Do buyers have to pay for these?
As a buyer, you might not have to pay for all of these either. Depending on your loan type, the seller may be allowed to cover up to 3% (conventional loan) or 6% (FHA or VA loan) of the total purchase price in your closing costs. Seller paid closing costs are a great way for buyers, especially first time home buyers, to purchase a home with putting minimal money down!
When do I ask for closing costs?
You can ask for closing costs to be covered by the seller as a part of your initial offer. You can also ask for these when negotiating potential repairs and credits during the inspection period. It’s important to keep in mind that the seller cannot credit you more than your total allotted closing costs, so be sure to consult with your trusted real estate and lending professionals in these negotiations. There are some clever ways we can increase your closing costs in order to maximize your benefit from the seller.
The takeaway
Like most things in real estate, ask questions and ask them early in the process! It’s important to discuss closing costs with your lender, and ask him or her to offer you an itemized loan estimate right away. This will provide you with the information needed to know exactly what you can afford, and it will outline the anticipated fees in a very transparent fashion. This estimate becomes a critical tool for your and your real estate agent as well when it’s time to make an offer.
Have other questions about closing costs? Just give us a shout!