Statista reports that some 6.12 million home sales are expected in the United States in 2020. If you’re planning to be part of that crowd of purchasers, you’ve probably spent a lot of time thinking about home prices and mortgage programs and how much you can afford. As you’re doing your calculations, don’t forget to make arrangement for your closing costs. Speaking of which, what are closing costs?
What Are Closing Costs?
Closing is the step that officially takes you from homebuyer to homeowner. It’s when money changes hand, deeds are exchanged, and contracts are signed. Appropriately, it’s also when closing costs are due. What are closing costs? As Realtor.com explains, closing costs are an assortment of fees paid to various third parties during the closing of a house sale as part of the transaction.
Buyers are likely to bear the brunt of closing costs, but it’s sometimes possible to persuade the seller to share part of the total. Alternately, you may be able to roll some or all of the closing costs into your home loan. For a smooth closing, you’ll need to have a plan in place for the payment of these costs before taking your place at the closing table.
Common Closing Costs
What types of fees fall into the category of closing costs? As NerdWallet reports, there are many items that routinely appear on lists of closing costs:
- Fees related to the property include the funds due for the various appraisals and inspections of the property.
- Fees related to the loan include things like origination and application fees, monies for prepaid interest, and attorney’s fees. If you choose to purchase discount points, the bill for them also comes due at closing. Depending on the size of your down payment and the type of loan that you choose, you may also need to pay for mortgage insurance or guarantee fees.
- Fees related to taxes and insurances include the monies owed for city and county property taxes and any homeowners association dues. As for insurance, you’ll need to arrange for homeowners insurance and title insurance.
How Much Do They Cost?
How much do closing costs add to the price tag of a home? According to U.S. News & World Report, closing costs typically average somewhere between two and five percent of the home’s purchase price. Therefore, if you’re purchasing a $200,000 home, you should plan for your closing costs to be in the neighborhood of $4,000 to $10,000. For more specific figures, look at your closing disclosure. You should receive this document at least three days before you go to closing.
Tips for Lowering Closing Costs
Few people want to pay more than they have to. Fortunately, as Investopedia points out, there are a few things that you can do to reduce your bill for closing costs:
- Negotiate. Some fees may be set in stone, but others are flexible. Asking politely may enable you to negotiate lower costs for some charges.
- Close at month’s end. Certain charges are calculated on a daily basis. Scheduling closer to the end of the month means that you’ll be paying fewer prepaid daily interest charges, so the amount due at closing will be smaller.
- Reach out to the seller. A motivated seller may be willing to pay part of your closing costs. Alternately, they may lower their price to offset some or all of the closing costs.
- Review your closing paperwork. Compare your closing disclosure with your loan estimate carefully. Although some change is normal, major shifts could indicate mistakes or problems that might prevent you from closing on time. If you aren’t sure about something, ask your lender for an explanation.
- Roll closing costs into the loan. If coming up with money for closing is a major stressor, you may be able to roll the costs into your loan. You’ll still end up paying them in the form of a higher loan amount, but you’ll have less of a burden at closing.
When you’re selecting a mortgage and buying a home, you’ve got a lot to think about. PrimeLending of Springfield, Missouri, can help. With our commitment to friendly, knowledgeable service and transparency, we’re ready to guide you through the process of securing the right home loan for your situation. Contact us today to get started.