Coming up with a twenty-percent down payment for the house you hope to buy is no easy task. But did you know you could be responsible for thousands of more dollars of out-of-pocket expenses for your real estate transaction? Learning mid-process about closing costs can be painful because you’re already emotionally invested in the house, so you’re forced into a position of having to borrow from another source, dip into an emergency fund, negotiate terms, or lose the property you were trying to buy. Here’s what you need to know about closing costs for buyers.
A Quick Overview of Closing Costs for Buyers
Professionals in the real estate industry who recognize and work with the flow of real estate transactions provide their services up front and collect a fee at the time of closing. Some of the services enveloped under the umbrella of closing costs are the appraisal, survey, and inspection the house must pass before the bank clears the loan. Of course, that’s far from being a complete list of services.
How Much are Closing Costs?
When you find a house you’d like to submit an offer for, you can estimate your closing costs to be between one percent and eight percent of the home you’re buying. Your lender will provide you an estimated amount, and then three days before closing must provide a statement of actual costs.
It’s Usually the Buyer
The buyer usually absorbs the closing costs for the house because most of the services provided are to satisfy the buyer’s lender and protect the buyer against problems with the property that are revealed during the transaction. But buyers aren’t always in the position to fork over thousands of more dollars for expenses they didn’t know were coming.
Room to Negotiate
Sometimes the sellers are willing to take on a part, if not all, of the closing costs. In this case, the closing costs are deducted from the proceeds from the sale of the house before the seller ever collects, so there’s no out-of-pocket expense from closing costs.
Services Contributing to Closing Costs include:
Lending Fees: The person at the financial institution who helped you process your loan application.
Credit Check: That loan officer, upon receiving your application, ordered a credit report, for which there is a fee. The bank pays the fee up-front and takes that money back at closing.
Loan Processors: When the lending officer determines your application is approved for a specific amount, the lending officer submits the package to a loan processor who accumulates the documents required for completing the loan. The loan processor gets paid at closing.
Escrow Agents: Escrow agents are nonbiased, third-party professionals who conduct the transaction regarding holding funds, issuing service provider fees, paying off the existing mortgage, transferring the title, dispensing real estate agent commissions, and then releasing the remaining funds from the transaction to the seller.
Attorneys: Not all states, but some, require that a lawyer review all real estate contracts.
Survey: Determines the boundary lines for the property.
Inspection: Deems the property free and clear of malfunctions, disrepair, and pests.
Appraisal: Satisfies the lender that the property’s current market value aligns with amount you’re borrowing.
Homeowner’s Insurance: Sometimes the bank requires pre-payment of at least two installments of homeowner’s insurance.
Property Taxes: As with homeowner’s insurance, lenders may require a prepayment of property taxes for at least two months.
Interest: There’s a period between the closing day when you take ownership of the house, and when your first mortgage payment is due. The amount of interest incurred during this period is usually prepaid at closing.
Private Mortgage Insurance: If you paid less than a twenty percent down payment as part of a unique lending program, your lender might make it mandatory to maintain private mortgage insurance.
Title Insurance: Title insurance protects the lender and the buyer if problems arise with the title to the property.
Closing costs may vary from one lending institution to the next, but in general, they’re pretty close to predictable. Expect to pay as much as eight percent of the amount of the house you’re buying as out-of-pocket expenses due on the closing day when you receive the keys and ownership of the property.
Your real estate agent is the best source of information about the local community and real estate topics. Give George Tallabas III a call today at 208-880-2333 to learn more about local areas, discuss selling a house, or tour available homes for sale.