What are closing costs, anyway?
Closing costs are essential factors in real estate transactions, but inexperienced home buyers may not consider them when planning their home search. The term is broad, but can include many different fees and costs that the buyer is expected to pay out-of-pocket during the purchase process as opposed to financing (included in the mortgage). Typical closing costs average between 2-5% of the home’s purchase price ($10,000-$25,000 on a $500,000 home).
Closing costs could include, but are not limited to, the following:
- Title Fees (title search, title insurance, etc. Lenders require title insurance for them, and you should buy some, too.)
- Attorney Fees (In some states, you’ll need an attorney to handle closing details.)
- Lender Costs (Your mortgage lender’s fee, for example.)
- Homeowners Insurance (Especially if you are not financing your purchase. This is sometimes included in the monthly mortgage.)
- Appraisal Cost.
- Inspection Costs (This will depend on how many inspections you need. Common inspections include: general home inspection, electrical, septic, well water, engineering.)
- Local Taxes and Fees
After you complete your loan application with your mortgage lender, they will provide you with a loan estimate that includes the estimated total of your closing costs. These costs will be finalized several days before your closing date. Go over closing costs with your agent to be sure that you are prepared and that you understand everything you’re being asked to pay.
If you do not want to pay all of your closing costs in cash at closing, you and your agent can try to negotiate with your lender and the seller. Sometimes, a seller will agree to cover closing costs, perhaps in exchange for a higher total purchase price. Raising your purchase price instead of paying closing costs can save you money up front by rolling those costs into your mortgage financing. Your lender may offer you a similar option.
Be honest with your Nest agent about your budget, concerns, and understanding of key procedures and they will help you get through the closing process in one piece, costs and all.