Buying a home is a big financial investment, but did you know there are additional costs associated with getting a mortgage loan besides the down payment and monthly mortgage payment?
One of these expenses is closing costs. Closing costs have to be paid before you close on your home, and include things like property taxes, homeowners insurance, title search fees, and appraisal fees. Closing costs also pay the people who’ve performed services throughout the loan process, like the appraiser and your real estate agent.
It is important to know that while they’re called closing costs, you may be asked to pay some of them as the action happens. For example, you may have to pay for your home inspection when the inspector finishes.
All of your closing costs will be itemized and given to you at closing, but don’t hesitate to ask your mortgage banker or agent to clarify if something doesn’t make sense or doesn’t look right.
Who Pays For Closing Costs?
As a homebuyer, you can negotiate with the seller when it comes to who covers closing costs. Sometimes, the seller may cover all of your closing costs, but every loan has a different guideline about how much a seller can pay. Talk to your mortgage banker to learn your options.
Budget For Closing Costs
If you’re going to have to pay for some or all of your closing costs, it’s important to remember to include the sum in your budget.
Estimate Your Closing Costs
Generally, closing costs are 2% to 6% of your purchase price. So, for a loan of $150,000, your closing costs may range anywhere from $3,000 to $9,000. You can do this simple calculation for yourself and see how much you will need for closing costs.
Your mortgage banker should also give you a document after you apply for your loan that breaks down your interest rate, monthly payment, taxes, insurance, and closing costs. The closing costs listed on that document may change a bit throughout the process, but it will give you a good idea of what to expect.
Save a Little Extra Each Month
It may seem obvious that you’ll need to save for a downpayment for your house, but you should also set some cash aside each month to cover other expenses associated with buying a home. Yes, this includes closing costs, but it can also cover other unexpected expenses, like emergency repairs.
