What You Should Know About Closing Costs
It is critical to plan ahead before purchasing a home. While most buyers consider how much they will need to save for a down payment, many are surprised by the closing costs. To avoid being caught off guard when it comes time to close your home, you should be aware of what closing costs are and how much you should budget for them.
What are the 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 the following:
- 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 closing costs is important, but knowing what you’ll need to budget to cover them is just as critical. According to the Freddie Mac article mentioned above, closing costs are usually between 2% and 5% of the total 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 that your closing costs will be higher or lower if you’re in the market for a home above or below this price range.
What’s the Best Way To Make Sure You’re Prepared at Closing Time?
Freddie Mac provides excellent 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.”
Work with a trusted team of real estate professionals to determine how much you'll need to budget for closing costs. An agent can assist you in connecting with a lender, and your expert team can answer any questions you may have.
It's important to budget for the fees and payments that will be due at closing. Work with a local real estate professional who can guide you through the process and make you feel confident.