Understanding Closing Costs on Your New Home
Are you looking for your first home? Maybe you’re looking for a forever home. No matter which category you fall under, some things are universal about the home-buying process. For instance, you might hire a real estate agent, check out MLS property listings, go to home showings, and compare home values. When the time comes, you will also get prepared by having your mortgage loan and down payment ready, so the closing transaction goes as smoothly as possible.
Yet the down payment is not the only thing you will pay before getting the keys to the house. You will also need to pay the closing costs.
Fees for Services Associated with the House Sale
Closing costs are typically fees that are paid to a host of third-party companies who assist you with the closing transaction of the home. These companies can be lenders, title companies, insurance companies, attorneys, appraisal companies, pest control companies, escrow companies, home inspectors, and city/county public land recording offices.
These companies will charge fees for their services. Depending on how you are proceeding with the home sale transaction, such as paying cash or getting an FHA loan, will determine the fees you will have to pay. Some of the most common fees for homebuyers include:
- Lender application fee when processing your mortgage application
- Home appraisal fee to evaluate the house's fair market value
- Escrow fee to the title or escrow company that is overseeing the closing transaction between buyers and sellers
- Home inspection fee to check the condition of the property to ensure all repair contingencies have been met
- Homeowners insurance for the first year to protect the house from damage
- Title search and insurance fees to check for other claims to the property and to ensure you own the house
- Lender's origination fees to cover the mortgage's administrative costs
- Property taxes for the home
- Survey fees to verify property boundaries
- Realtor fees
In addition, home sellers will also pay fees at closing. They will normally pay title transfer fees, realtor fees, and other closing fees for the home sale.
Closing Cost Amounts
Closing costs are calculated based on a percentage dependent upon the purchase price for the property. These fees usually average between 2% to 5% of the purchase price, although they may go as high as 7%. The reason there is no fixed rate is that different states, cities, and municipalities have different requirements on what is required to close a home transaction -- which leads to varying fees.
So, if you’re buying a house that costs about $200,000, you may have to pay about $4,000 up to $10,000 for the closing costs. Be aware that the closing cost is in addition to your down payment.
Budgeting for Closing Costs
It is always in your best interest to understand what the rough amount for the closing costs will be based on where you plan to purchase the house so you can save up enough money. Instead of trying to perform a rough calculation, you can ask the credit union when you apply to give you an estimate that will be more accurate.
We’re Here to Help!
Buying a home is an exciting time, but it can also quickly become confusing. Relax. We’re here to help you through the entire process, one-on-one. If you have questions about buying a home or closing costs, stop by or give us a call at 800.336.6309.
Everyone’s financial situation is unique, and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed.