If you’re like many first-time home-buyers, you may be totally thrown off guard and confused by the term “closing costs.” Closing costs is a broad term for expenses and fees for products and services incurred during your real estate transaction.
You can estimate closing costs to be approximately one percent to eight percent of the total value of the home you’re purchasing, although average numbers may vary by state. When your home loan is pre-approved, your lender will provide you with a rough estimate of closing costs. Then, three days before the close of sale, you’ll receive a statement of actual costs.
Closing costs are not covered by your home mortgage loan and should be considered an additional out-of-pocket expense. However, in some cases, the buyer can negotiate the terms of the contract so that the seller pays part or all of the closing costs. However, in the case of competing offers, the seller may be inclined to accept the offer of the buyer who didn’t negotiate the responsibility of closing costs. Furthermore, special loan programs may allow you to include closing costs in your loan if you qualify.
Here are a few of the items that may be included in your closing costs at the end of your real estate transaction:
Survey: When the seller accepts your offer, a surveyor must clearly define the property lines and boundaries.
Inspection: An inspector is called in to determine that there are no problems with the condition of the property and its major systems such as heating and air, plumbing, electrical, roofing, and pests like termites.
Appraisal: The appraiser verifies for the bank that the home and property are worth what you’re borrowing in the current real estate market.
Legal: Some states require lawyers to review real estate contracts.
Administrative: The title has to be checked for tax holds or liens. For this, there are administrative fees in addition to filing fees charged by the county or city.
Courier: Many of the documents, forms, and reports involved in real estate transactions need to be transferred physically from one location to another.
Escrow Agent: The escrow agent is the third-party agent who manages funds from the lender and disburses money appropriately to service providers, etc.
Lender: The representative from the lending institution who helped you apply for your home loan receives payment for his or her services.
Credit Reporting: When the lender processed your application, he or she also had to order copies of your credit report. The fee for obtaining the report is also included in your closing costs.
Underwriting fees: Although the lending agent helped you apply for your home mortgage loan, the processing of the paperwork to approve the loan is conducted and charged for separately.
Interest: In some situations, the lender requires the advance payment of interest incurred between the time of close and when the first mortgage payment is due.
Insurance and Taxes
Insurance and Taxes: Not always, but in some cases the bank also requires a two-month pre-payment for property taxes and homeowners insurance.
Wire Transfer Fees
Wire Transfer Fees accumulated when money is transferred between accounts.
Real Estate Agents
Real Estate Agents: Real estate agents work under brokerages, who also charge a fee that encompasses the real estate agent commissions.
Even though you may have spent years saving for the investment of your first house, you’re going to need more than a twenty percent down payment and earnest money deposit to purchase a home. When you determine your home-buying budget and the amount of up-front, out-of-pocket funds you’ll need, don’t forget to figure in the closing costs.
Talk with your lender and with your real estate agent to gain a deeper understanding of what closing costs are, as well as how and when they are to be paid.
Many first-time home-buyers have no idea of what closing costs are, who is responsible for them, and how they’re paid. It’s those same buyers who may face disappointment when they realize they’re not as prepared as they thought they were to buy their first house. By knowing ahead of time what to expect in terms of closing costs, you’ll be better prepared and not caught off guard when you’re asked to pay more than what you’d originally anticipated.
Your real estate agent is the best source of information about the local community and real estate topics. Give Tory Castillo a call today at 925-718-6658 to learn more about local areas, discuss selling a house, or tour available homes for sale.