Are you closing in on that home of your dreams? Congratulations. However, it’s important not to make the same mistake most home buyers make at the final moment. The down payment on your home is not your only expense when closing the deal. You also need to pay up other expenses equally crucial. These expenses are the closing costs, i.e., payments you remit to your lender in exchange for loan services. Hey, there’s more to this concept. Keep reading to learn more.
What Closing Costs Mean
Before you collect the house keys and transfer homeownership, you must settle some expenses. Some of these expenses are usually for the third-party individuals or institutions integral to the entire real estate transactions. Some of these external persons include real estate attorneys and mortgage lenders. So, to finalize the home transaction, you would need to make these expenses.
However, professional fees are not the only things you need to pay for at the end of your journey. Some other parts of the closing costs may include fees related to the origination and underwriting of a mortgage loan. Few others are real estate commissions and insurance premiums. Taxes, as well as title and record filings, are part of what you may need to cover.
You should know that the law requires a lender to provide you with a loan estimate document. This document must be delivered to you within three days of receiving your mortgage application. And it highlights the predictable closing costs and mortgage information.
How Much are Closing Costs?
Usually, closing costs go within 3%–6% of the purchase price of your home. If you purchase a home that costs $250,000, the closing costs of that purchase could fall within the range of $7,500 to $15,000.
Also, note that as far as closing fees are concerned, they vary from transaction to transaction. If you are buying two homes concurrently, the closing costs for house A can differ from that of house B. And these variations are dependent on your state and the type of loan you are getting. The mortgage lender could also contribute to this.
Types of Closing Costs
As noted earlier, different types of expenses make up the closing costs. They include:
- Attorney Fee
- Courier Fee
- Escrow Deposit
- FHA Mortgage Insurance Premium
- Rate Lock Fee
- Property Appraisal Fee
- Loan Origination Fee
- Lender’s Title Insurance Amongst Others
Who Pays Closing Costs?
The buyer and seller pay the closing costs in a real estate transaction. And as guessed, the buyer bears most of the brunt of expenses here. But you can speak with your seller to help with some payment parts. Especially if you think getting money to close might be a bit tough. This situation when the seller pays is known as a seller concession.
How to Reduce Closing Costs
Many do not know that you can reduce your closing costs. But it is possible. And here are some ways you can go about it.
- Pick the Most Favorable Lender
Do not be afraid to shop for the right lender with low fees and interest rates. This would help you to reduce closing costs in the long run.
- Request Seller Concession
You can ask your seller to contribute to the closing costs. Especially if you need some financial aid with closing. That would mitigate your input to the overall closing expense.
In conclusion, don't entertain the thought that closing costs are a death sentence. They are simply estimated expenses in the entire real estate transactions. So, factor them into your financial plans as you go on to get the home of your dreams today.