Planning for Closing Costs: What Every Homebuyer Should Know
Now that you’ve made the decision to buy a home, it’s essential to plan for all the costs associated with the process. While your down payment is likely the primary expense on your mind, don’t overlook the importance of budgeting for closing costs. Here’s everything you need to know to be prepared.
What Are Closing Costs?
Closing costs are the additional fees and payments that come due when finalizing your home purchase. These costs can vary depending on the price of the home and the type of financing you use, but every buyer will face them in some form. Often, closing costs catch people off guard because they forget to account for them. According to Freddie Mac, closing costs typically include:
- Application fees
- Credit report fees
- Loan origination fees
- Appraisal fees
- Home inspection fees
- Title insurance
- Homeowners insurance
- Survey fees
- Attorney fees
Some of these are one-time expenses that are part of the closing process, while others, like homeowners insurance, are initial payments for ongoing costs you’ll have after you take possession of the home.
How Much Are Closing Costs?
Freddie Mac notes that closing costs can vary widely depending on your location and home price. Generally, expect to pay between 2% and 5% of the purchase price in closing fees. For example, if you’re buying a home at today’s median price of $422,600, your closing costs could range from approximately $8,452 to $21,130. Of course, if your home is priced higher or lower, your closing costs will adjust accordingly.
Tips To Reduce Your Closing Costs
If you’re looking to reduce your closing costs, here are some strategies:
- Negotiate with the Seller: Some sellers may be willing to cover part of your closing costs, especially in a slower market. Don’t hesitate to ask for concessions, like paying for the home inspection or offering a credit toward closing fees.
- Shop Around for Home Insurance: Home insurance costs are rising in many areas, so it’s essential to compare policies from different providers. By getting multiple quotes, you can find the best coverage at a competitive rate, which can help lower your overall costs.
- Look into Closing Cost Assistance: There are programs that can help with closing costs, just like there are for down payments. These programs vary by location, income level, profession, and even specific neighborhoods. Your real estate professional can guide you toward the best options, and HUD’s website offers resources for finding homebuying assistance programs in your state.
Planning for closing costs is crucial in the homebuying process, but it doesn’t have to be overwhelming. With the right guidance, you can make sure you’re financially prepared. Let’s connect so I can help you navigate this important step and ensure a smooth transaction.
