What Are Closing Costs?
One possible reason some people are surprised by closing costs may be because they don’t know what they are or what they cover. According to U.S. News and World Report:
“Closing costs encompass a variety of expenses above your property’s purchase price. They include things like lender fees, title insurance, government processing fees, upfront tax payments and homeowners insurance.”
In other words, your closing costs are a collection of fees and payments made to a variety of individuals and organizations who are involved with your transaction. According to Freddie Mac, while they can vary by location and situation, closing costs typically include:
- Government recording costs
- Appraisal fees
- Credit report fees
- Lender origination fees
- Title services
- Tax service fees
- Survey fees
- Attorney fees
- Underwriting Fees
How Much Will You Need To Budget for Closing Costs?
Understanding what closing expenses include is essential, but knowing how much money you’ll need to set aside to cover them is crucial to accomplishing your home-buying objectives. Closing expenses are normally between 2% and 5% of the entire purchase price of your property, according to the Freddie Mac article linked above. With that in mind, here’s how you can estimate how much money you’ll need for closing fees.
Let’s imagine you come across a home for $350,300 that you’d want to buy. Your closing costs could range from $7,000 to $17,500, based on the Freddie Mac estimate of 2-5 percent. Keep in mind that your closing costs will be more or lower if you buy a house outside of this price range.
What’s the Best Way To Make Sure You’re Prepared At Closing Time?
Freddie Mac offers excellent advise to first-time homebuyers, saying:
“Take the time to gain a feel of all costs involved in buying a home, from your down payment to closing charges, as you begin your homebuying adventure.”
Working with a team of trustworthy real estate pros is the best approach to figure out what you’ll need at the closing table. An agent can assist you in finding a lender, and the two of you can work together to find answers to your questions.
Bottom Line
In today’s real estate market, it’s more vital than ever to ensure that your budget accounts for any closing costs and payments. Let’s connect so you have the knowledge you need to embark into the homebuying process with confidence.