Buying a house comes with some unexpected expenses. Don’t let closing costs be one of them – find out what to expect as a buyer or seller when it comes to closing costs on real estate transactions.
It’s so tempting to think of your mortgage as the price of your new home, period. But in reality, home buyers are often on the hook for a lot more than just their downpayment and the monthly payments that follow. When you close on your home mortgage – whether that’s a first or second mortgage – you’re going to have to pay closing costs. Even sellers have to pay some closing costs.
Let’s see what closing costs are, who pays them, and whether you can get some assistance covering these costs.
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As the name suggests, closing costs are the costs associated with closing a mortgage. To be more specific, they’re usually fees charged by companies or professionals involved with the mortgage process, such as attorneys, title companies, insurance companies, and more. However, because regulations differ from state to state, not every mortgage has the same closing cost requirements.
Usually, total closing costs range from about 2-6% of the property cost. Although buyers pay the bulk of closing costs in a real estate transaction, it’s important to note that sellers have to pay a few closing costs of their own.
Home buyers can expect to be given a document listing expected closing costs (called a loan estimation) prior to completing their loan. Within three days of the loan closing date, you should receive another document listing the actual closing costs. These might include:
Buyers also have to pay their own set of closing costs. Depending on the area and what the purchase contract stipulates, these can include:
Closing costs can add up quickly; if you’re buying a $200,000 house, you could easily be looking at an additional $5,000 in costs – and that’s in addition to your down payment. Not a lot of home buyers have that kind of extra cash to hand, so it’s best to budget it into your plans.
What if you can’t or don’t want to pay your closing costs upfront? Talk to your mortgage lender before you close the loan; they may be willing to bundle these costs into your mortgage. You may also want to investigate non-traditional loan options, which can help you with some of the financial burdens of homebuying. For more information, contact your local Mortgage 1 loan specialist today!