Before you buy a home, it’s important to plan ahead. While most buyers consider how much they need to save for a down payment, many are surprised by the closing costs they have to pay. To ensure you aren’t caught off guard when it’s time to close on your home, you need to understand what closing costs are and how much you should budget for.
What Are Closing Costs?
People are sometimes surprised by closing costs because they don’t know what they are. According to Bankrate:
“Closing costs are the fees and expenses you must pay before becoming the legal owner of a house, condo or townhome . . . Closing costs vary depending on the purchase price of the home and how it’s being financed . . .”
In other words, your closing costs are a collection of fees and payments 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 costs include is important, but knowing what you’ll need to budget to cover them is critical, too. According to the Freddie Mac article mentioned above, the costs to close are typically between 2% and 5% of the total purchase price of your home. With that in mind, here’s how you can get an idea of what you’ll need to cover your closing costs.
Let’s say you find a home you want to purchase for the median price of $366,900. Based on the 2-5% Freddie Mac estimate, your closing fees could be between roughly $7,500 and $18,500.
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 To Make Sure You’re Prepared at Closing Time?
Freddie Mac provides great advice for homebuyers, saying:
“As you start your homebuying journey, take the time to get a sense of all costs involved – from your down payment to closing costs.”
Working with a team of trusted real estate professionals, like us at Brick & Corbett, will help you understand exactly how much you’ll need to budget for closing costs. Our agents can help connect you with a local lender, and together your team of experts can answer any questions you might have. We highly recommend the team from Arch Mortgage North for any local lending needs. When we spoke to their Lead Loan Officer, Jeremy Kilbourne, he had this to say:
“Besides knowing the area and local real estate market, a local lender will appear more attractive to certain home sellers and real estate agents because of the importance of a timely closing and a smooth process. In a situation where several offers are on the table, having a local, trusted lender could be the difference between landing the house or not. Some sellers and real estate agents may not even consider offers from national banks or online lenders because of previous bad experiences, or because of the bad reputation some of these have.”
Jeremy’s colleague and fellow Loan Officer, Charity Anderson, agrees and cautions that shopping for a home without speaking to a local lender first may lead to disappointment during the homebuying process:
“Before you let your heart fall in love with a house you should always have an estimation of what the total cash out-of-pocket will be. This includes not only the down payment, but the closing fees and initial escrow account set-up for homeowners’ insurance and property taxes. Your lender should run estimates for you, so you can feel confident before making an offer on a house. As a Loan Officer, and a true number’s person, I really enjoy helping people with the financial planning process, and always make sure my clients know these numbers when shopping for a home.”
It’s important to plan for the fees and payments you’ll be responsible for at closing. Let’s connect now so we can help you feel confident and prepared throughout the homebuying process.