When purchasing your home, it is extremely important to know all of the costs involved. While the costs will very each individual and home, you can still expect to see the same type of fees with each home purchase. The absolute best way to get an accurate estimate of exactly how much money you will need is to talk with a local mortgage lender!
Costs involved with buying a home:
When buying a home, especially if you are financing the home, most people are aware of the down payment costs. The down payment amounts can vary, but ultimately every buyer expects to pay that. However, there are plenty of other fees that are involved with buying a home. Those costs can include home inspection fees, appraisal fees, survey fees, escrow deposits, and closings costs. Inspection and appraisal fees are usually paid up front during the contract process by the buyer, these fees vary based on inspection company, size and value of home, and whether your bank will charge the appraisal fee up front or not.
As a general rule, I would recommend having 4-6% of the home purchase price available, on tp of your down payment money. This range recommendation is a little on the high side, but this is to factor in those upfront costs, any additional forms of inspection you request, and just having some savings off to the side for moving, potential repairs, unforeseen expenses, etc.
What are closings costs?
Closing costs primarily are made up of lender fees, title fees, and government fees. Yes, I know, it all seems like a big scam! But the reality is, there is a lot that goes into buying and selling homes, and the behind the scenes work it takes. Below is a list of fees you can expect to see as part of your closing costs.
State Fees
Governemnt Fees
Taxes
Insurance
HOA Prorations
Lender Fees
Title Search Fee
Title Policy Fees
And more
These fees all add up very quickly. As a part of that 4-6% of the purchase price recommendation I made earlier, is your closing costs. On average, homebuyer closing costs can add up to about 3-4% of the purchase price of the home. The additional 1-2% I recommended is for things like inspections, appraisals, escrow, and having some padding on the wallet.
How to Navigate Closing Costs?
No matter what, the lenders, title companies, inspection companies, and States are going to make their money. However, you can typically negotiate these fees! The majority of fees are set in stone and won't be able to be changed, but there are a few you can negotiate and save some money!
One of which will be the lender fees. This fee is charged by the lender to cover all sorts of expenses they concur when taking you through the financing process. It might be worth asking the lender if they can waive things like transactions fees or underwriting fees, but you can also ask them to help buy down the rate with part of that lender fee. This cannot always be done, but worth a shot!
Another common negotiation tactic is to negotiate with the seller of the home to cover some of these costs at closing, coming out of their net proceeds. This can ALWAYS be done, but lenders will put a limit on how much a buyer can receive, and also the seller will always have a bottom line of which they need to make. Talk to your buyer's agent about negotiating closing cost credits into the purchase!
Conclusion:
Make sure you talk diligently with your lender and agent to get a good understanding of what your costs are to purchasing a home. Your lender will likely provide an estimated and itemized breakdown of fees, closing costs, down payment, and monthly payments. If you do not receive this, ask for one.
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