You’ve saved up for a sizeable down payment and managed to secure a mortgage with highly favorable terms. However, you may be forgetting one major expenditure – closing costs. Not being prepared for this particularly expensive aspect of your home purchase could delay your purchase or force you to borrow money, neither of which is ideal.
Get to know what closing costs are and why you need to pay them.
WHAT ARE CLOSING COSTS?
Closing costs are additional fees required to complete or close the real estate transaction. At closing, both buyer and seller will have their share of fees to pay, which typically amounts to 2% and 5% of the purchase price. So in theory, if you’re buying a $400,000 property, you may have to pay anywhere from $8,000 to $20,000 in closing costs.
Closing costs are necessary to settle the real estate transaction between all parties involved, apart from the buyer and seller. The parties can include real estate agents, attorneys, lenders, the title company, and other public and private agencies. Closing costs are meant to cover the services provided by these parties.
HOW DO I KNOW HOW MUCH MY CLOSING COSTS WILL BE?
The amount of closing costs you have to pay is typically made available in your loan documents. When applying for a mortgage, your lender will provide you with a loan estimate, which should contain the closing cost amount. As the closing day nears, your lender will send you a closing disclosure that includes adjustments to your costs. Carefully go over the document and don’t hesitate to contact your lender immediately if anything needs clarification.
WHAT FEES ARE INCLUDED IN CLOSING COSTS?
There are many different types of closing costs. They often include, but are not limited to, the following.
For buyers:
- Loan origination
- Credit report
- Down payment
- Property appraisal
- Home inspection
- Attorney’s fee
- Courier fee
For sellers:
- Title search
- Title insurance
- Survey
- Escrow
- Transfer taxes
- Recording fees
- Outstanding amount owed on the property
CAN I NEGOTIATE MY CLOSING COSTS?
The good news is some closing fees are negotiable. For instance, some aspects of the origination fee can be waived. Buyers can also ask the seller for a “seller’s concession” where the latter shoulders a portion of the closing cost to speed up the transaction process.
CAN I BUNDLE MY CLOSING COSTS WITH MY MORTGAGE?
On home purchases, closing costs are typically paid along with the down payment, and you will have to pay them out-of-pocket and separate from the loan. However, you can add your closing costs to the loan amount when you refinance. If you have a tight budget, one strategy you can use is to reduce your down payment to cover closing costs, but bear in mind that this means you’ll have to manage a larger mortgage.
ARE THERE UNEXPECTED CLOSING COSTS THAT COULD COME UP?
Unfortunately, the loan estimate handed to you at the beginning of your purchase can vary drastically come closing time, so it’s important to set some money aside that will serve as a buffer. Aside from unexpected closing costs, you also have to prepare for surprise repairs and maintenance, as some problems present themselves only after you’ve moved in.
Work with Carter and Associates Realtors today!
When you partner with Carter and Associates Realtors on your Intown, Atlanta real estate transaction, you are guaranteed a dynamic team of real estate agents who can provide guidance and help you meet the challenges head-on. Call 404.932.7388 or contact them here to get started.