Understanding Closing Costs as a
First-time Home Buyer
When it comes to buying a home, the selling price, monthly mortgage payments, and down payment are not the only costs involved.
To make sure you understand everything you need to know about closing costs, take a look at our guide below.
What are closing costs?
Closing costs are fees associated with your home purchase that are paid at closing – when the title of the property is transferred from the seller to the buyer. Both buyers and sellers pay closing costs to the service providers who help facilitate the transaction. Although a number of factors influence how much you can expect to pay, closing costs often range between 2% and 5% of the total purchase price. The fees included in your closing costs will mostly depend upon the price of the home and the type of loan you choose. Closing costs include your down payment on the home as well as recurring fees, such as property taxes and insurance premiums, and non-recurring costs such as title company fees, application fees, home inspection costs, credit report costs, and property appraisal fees.
How can you know what to expect?
Knowing that you will have to pay an uncertain amount in addition to the cost of your home may seem intimidating, but you will not have to go into the purchase completely unprepared. Legally, your lender is required to provide certain information to help you through this process. Once your loan application is submitted, your lender will provide a loan estimate, which will estimate your interest rate, monthly payment, and closing costs. At least three days before you close on the loan, your lender will provide a closing disclosure, which lays out the terms of your loan, your projected monthly payments, and the closing costs of your loan.
Can you avoid closing costs?
Closing costs are an expensive additional cost to consider when buying a home, and it is impossible to avoid them altogether. However, there are some ways to reduce your cost burden. Spend some time looking through the service breakdown on your loan estimate and ask your lender about the possibility of shopping around for certain services. You can also negotiate the portion of the closing costs that the seller is responsible for. If you don’t have the money to pay closing costs upfront, it is also possible to include the closing costs into your mortgage loan. Although you will end up paying more in the long run, this is a good option for those who want to break up the payment of the closing costs.