Buying a home is never easy. It can take a lot more time than some may think. However, the time and money invested are almost always worth it.
You could have the property you’ve always dreamed of, a place where you can settle down and make lasting memories with loved ones.
Home buying can also cost more than some are prepared for. Mortgages are not cheap. You’ll want to prepare your finances accordingly, save enough for the down payment and your monthly mortgage payments.
You’ll also pay closing costs for buying a home before the sale can be completed.
What are Closing Costs?
Closing costs are fees for services rendered by different agencies. They are in addition to the overall purchase price of the home.
Most closing costs are about three percent of the sale price.
Buyers will typically pay an extra $5,000 to $10,000 in closing costs, depending on the origination fees and points charged by the mortgage lender.
Closing costs are something you’ll want to be knowledgeable about, and budget for.
Closing Costs Categories
Closing costs are usually broken down into two categories: recurring fees and non-recurring fees.
Recurring fees are paid again and again. They are usually paid in advance to establish escrow accounts and for any premiums that must be paid before the sale is completed. Common recurring closing costs include:
- Fire insurance premiums
- Flood insurance premiums
- Private or mutual mortgage insurance premiums
- Prepaid interest
- Property taxes
Depending on when you close on your home will determine how many months of insurance coverage will be pro-rated. Not all loans require escrows or interest.
Generally speaking, any home loan for three-quarters of the total balance or more usually need an escrow account to be established.
Non-recurring charges are one time fees that are paid before the closing process is complete. Some examples of these fees are:
- Attorney fees
- Courier or delivery fees
- Any endorsements that may be required
- Escrow or closing fees
- Paying for the home inspection
- Taking out a home protection plan
- Natural hazard disclosures
- Notary fees
- Any other lender fees in addition to the loan in regards to the loan estimate.
- Transfer taxes paid at the city, county or state level
- Title policies
- Recording fees
- Any applicable wire fees
Assistance in paying closing costs
There may be state or local programs that provide assistance in paying closing costs. Check with your county or state government office to see what programs are available and to see if you qualify.
Some of them either lend or give the entire closing costs to applicants. For programs that loan home buyers their closing costs, the loan is usually due upon the home’s sale or if the loan is refinanced, whichever one happens first.
In some cases, there may be certain seller credits that could be applied. Talk to your mortgage company before agreeing to any such circumstances, because the lender might not allow them.
Such credits are usually under ten percent of the total purchase price of your home. They can vary depending on your credit score, the amount of your loan and the amount of your down payment.
Closing costs may seem intimidating, especially for first-time homebuyers. You’re already saving a lot for the down payment. Now you have to save even more for the closing costs before you can actually own your home.
However, closing costs aren’t something that you should spend a lot of time worrying about. With some careful financial planning, you can turn your dream of homeownership into a reality.
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Examine your expenses
Once you’ve decided that you want to buy a home, take some time to review your finances. Look at your savings, debt, and expenses. When you know your price range, you can start saving immediately.
Start setting some money aside from your paycheck every time you get paid. You may want to establish a separate savings account just for this purpose.
Examine your expenses. If there are luxuries or other items that you could do without, now is a good time to cut them from your budget.
If you are carrying a high credit card balance or other debt, start paying those obligations down as soon as possible.
The less outstanding debt you have, the more favorable your credit will look to lenders.
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Stay on track with your savings
Stay on track with your savings and start setting benchmarks to track your progress. If you’re not doing as well as you thought, take a few minutes to see what’s going on.
Maybe there are more things that you can cut from your budget, or perhaps you just need to give yourself more time to save for your down payment and closing costs.
Talk to your real estate agent
Your real estate agent may be able to recommend lenders in your area. Feel free to talk with as many of them as you’d like. Make an effort to prequalify for a loan as soon as you can.
Don’t feel like you have to accept the first offer that you’re given. Shop around until you find a loan that best meets your own individual needs.
Buying a home can take months, so be patient. Everything has to happen in just the right order. Don’t feel like you have to rush through the process. Take as much time as you need every step of the way.
Also, make sure that you read any and all contracts thoroughly before signing them.
Ask questions if there is any contract language that you don’t agree with or don’t understand. You have the right to contest anything that you disagree with.
Although closing costs may seem like a burden, they’re actually put in place to ensure that everything runs smoothly. There are a lot of moving parts in a home sale.
Many different people and agencies are involved, and they should be properly compensated financially for their efforts.
Once you’ve gotten the one-time closing costs out of the way, the recurring closing costs shouldn’t be too bad. Closing costs are a necessary part of finally owning the home you’ve always wanted.
Have Questions? Ask Regan!
Your real estate agent is the best source of information about the local community and real estate topics. Give Regan Van Kerckhove a call today at 513-720-1290 to learn more about local areas, discuss selling a house, or tour available homes for sale.