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In addition to the price of your home, closing costs are the extra fees and expenses you might have to pay during the closing process. This can range anywhere between 2-4% of the purchase price of the new home you are looking at. It is important to know this before you go out with a real estate agent on tours of different homes so you understand what you will be asked to bring to the table. You can prepare for these closing costs by simply setting up a meeting with the lender you choose and they will give you a run-down of how much you could be qualified to borrow based on all your financials. Another good idea would be to start putting away as much money as possible and as early as possible to prepare yourself for the down payment on the house and any other unexpected fees and expenses that may come up. Here are some of the most common closing costs you will probably run into during the closing process:
- Home Inspection: This is super important and a major component of the process since a home inspector will come and provide a detailed report of all the good and bad things in and around the home. When finding a home inspector, it is also crucial that the person you hire is one who is reliable and does not let things slide. They should be looking for foundation issues, any damaged pipes, any roof problems and other major issues that can cause problems in the future.
- Attorney Fees: Getting an attorney to help with closing the deal is NOT mandatory, but is suggested during the process. If you do choose to get one you should budget for their hourly rate.
- Lender Fees: These fees include getting the house appraised, putting all the paperwork together and administration fees. Not all lenders will fold these fees into the mortgage, meaning that you will have to pay this cost upfront during the signing. The lender should go over all these fees with you before you make an offer on a home.
- Prepaid Costs: Depending on the lender you decide to work with, you will most likely need to open an escrow account (an account where funds are being accumulated for specific disbursements) to pay for prepaid homeowners insurance and property taxes, especially if you can only bring a low down payment to the table.
- Title Fees: These fees include the cost of lender title insurance, title search, and other service fees based on what your lender charges. Title fees can make up more than 50% of the total closing costs and it is critical to talk it over with your lender before making any decisions.
- Down Payment: Your down payment can depend on your personal financial history, credit score and type of loan you choose. A higher down payment usually shows how serious you are on the house and could definitely bring down your monthly mortgage payments.