How To Prepare For Closing Costs When Buying A House

By
Real Estate Agent with House Stories

Closing costs are one of many expenses that come with purchasing a house. These costs may come as a surprise to inexperienced homebuyers and often have a significant impact on the budget. As overwhelming and additional as these expenses may seem, there are ways to prepare for the seemingly added costs, which can easily be done by budgeting appropriately before you begin your search for a new home.


This article will take a deeper look into the world of
closing costs and give you an idea of how you can prepare for them when buying a new house.

How to Budget for Closing Costs

The most important thing a homebuyer can do when they are trying to save for their closing costs is to begin planning well in advance. It's a good idea to start saving enough money before you even think about shopping for a house. This way you will have plenty of funds saved up to help cover any unexpected costs that might come up, and you won't be pressured into cutting corners by borrowing from family or taking out loans. 


It's said that when you factor in your closing costs to your
home buying budget, you should anticipate 3-4 percent of the purchase price. For example, if you spent $200,000 on your home, you should be prepared for approximately $6,000 to $8,000 in closing costs. This is a good figure to start with, but keep in mind that it can vary widely, depending on the area you live in and how much of a mortgage you take out.

What's Included in Closing Costs?

Closing costs usually consist of three primary areas: mortgage origination fees, which include points and lender's fees; government recording fees; and third-party charges such as adjustments for utility hookups, flood certifications, home warranties and loan discount points. Some closing costs are negotiable, such as lender's fees or government recording charges. To get an accurate prediction of your closing costs when buying a house, you should ask your mortgage lender about the costs that apply to your specific transaction.


Some examples of closing costs include a down payment, the settlement agent fee, escrow or title searches, and any other charges that are typically associated with a home purchase. 


These fees can vary from state to state and depend on how much work needs to be done during the process of securing your mortgage. Two-thirds of the closing costs usually come from the paperwork involved in processing your mortgage application and arranging for all of the paperwork related to closing on your loan. The other third comes from various service charges from your lender and their unpaid agents. 

 

Some of these charges may include:

  • property evaluation fees
  • legal costs
  • fire/property insurance
  • land survey fees
  • property tax
  • home inspection fees

Factors That Affect Closing Costs

There are many factors that can affect the total amount you will have to pay for your closing costs. The size of your down payment for example, is a factor, but it's not the only one. Here are a few more factors that will affect your closing costs:


The size of your loan:
If you take out a large loan, then you will likely have to pay more in loan origination fees as well as points. What this means is that you should budget with an extra 2-4 percent for these fees if you're taking out a large mortgage. 


Where you buy:
If you are buying in a high-cost area, then it is likely that your closing costs will be higher as well. Areas with high property values tend to have higher transfer fees and taxes. It's best to research the areas you are considering so you can plan accordingly. 


The type of home you purchase:
The type of home you purchase will also have an impact on your closing costs. If you buy a newly built house, then the lender will set aside money for taxes that are owed once the property is assessed. However, if you are purchasing an existing home, then it's likely that you will be responsible for paying these taxes and fees upfront. 


So there you have it. Closing costs may seem like the bane of your existence, but they're simply part of the home-buying experience and with a little advance planning and budgeting on your part, they will be a breeze to deal with. The best way to prepare is to start saving for these costs before you get too deep into buying a home, and have some sort of general idea of how much can be expected you can
take expert help to do it.

 

Image source: https://www.pexels.com/photo/man-couple-people-woman-7578975/

Comments (2)

Kristin Johnston - REALTOR®
RE/MAX Realty Center 262-567-2455 - Waukesha, WI
Giving Back With Each Home Sold!

Great information.  Thanks for sharing and enjoy your weekend!

Sep 03, 2021 07:27 AM
Dan Hopper
Dan Hopper - Gold Way RE - Westminster, CO
Denver Broker / Real Estate Advocate

Thanks, ...  easy to read information for the public to understand what closing costs are all about.

Sep 03, 2021 08:13 AM