If you’re thinking about purchasing a home, you may have heard the term “closing costs”. First time buyers Make sure you’ve budgeted for more than just the down payment.
One of the biggest things that surprises hopeful homebuyers is making sure to budget appropriately for the “other” expenses of home buying. While most people understand the need to save for a down payment, a survey revealed 41% of buyers were caught off guard by their closing costs.
Let’s dive into the key things you should know about closing costs so you can budget and plan like a pro.
WHAT ARE CLOSING COSTS?
Closing costs are a collection of the fees and payments made to a variety of professionals and organizations who are involved with your home.
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
WHO PAYS CLOSING COSTS?
Buyers and sellers typically both pay closing costs, but the amount they’ll pay varies depending on a number of factors. This can be based on: purchase price of the home, financing type, professionals/organizations involved, and the state the property is in. The purchase agreement negotiations can also influence this.
EXAMPLE: In a competitive seller’s market, the buyer may offer to pay a portion of the seller’s closing costs. Or when a home has been sitting on the market, a motivated seller may offer to pay some of the buyer’s closing costs.
HOW MUCH SHOULD I BUDGET FOR CLOSING COSTS?
Understanding what closing costs include is important, but knowing what you’ll need to budget to cover them is critical to achieving your home buying goals. The National Association of Realtors (NAR) has this to say about how much to budget for:
“A home costs more than just the sale price. For example, closing costs—which make up about 2% to 5% of the home’s purchase price—are a major added expense…Lenders provide a Closing Disclosure at least three business days prior to closing on a mortgage. But buyers will need to budget for these added costs ahead of time to avoid sticker shock days before closing.”
EXAMPLE: Let’s say you find a home you want to purchase for the median price of $350,300. Based on the 2-5% estimate, your closing fees could be between roughly $7,000 and $17,500. Keep in mind, if you’re in the market for a home above or below this price range, your closing costs will be higher or lower.
WHAT’S THE BEST WAY FOR ME TO PREPARE FOR CLOSING?
The best way to understand what you’ll need at the closing table is to work with a trusted Omaha real estate agent sooner than later. Getting in touch ahead of time allows you to be fully prepared when the time is right. A real estate agent can connect you with a reputable lender, and together they can provide answers and guidance to your home buying questions along the way.
BOTTOM LINE
In today’s real estate market, it’s critical to make sure your budget includes any fees and payments due at closing. Let’s connect so you have the knowledge you need to be confident going into the home-buying process. Whether you’re looking in Omaha, Lincoln, or Southwest Iowa, I’d love to help with your purchase!
