Have you saved enough for closing costs?
Did you know that many loan programs will allow you to put down as little as 3% (or 0% with a VA loan)? Many homebuyers and sellers believe they need at least 20% down in order to buy their next home. There have been countless times that I have seen buyers put down much less and even in some cases nothing, when buying their next home.
If you have saved up your down payment and are ready to start your home search, one other piece of the puzzle is to make sure that you have saved enough for your closing costs.
Freddie Mac defines closing costs as:
“Closing costs, also called settlement fees, will need to be paid when you obtain a mortgage. These are fees charged by people representing your purchase, including your lender, real estate agent, and other third parties involved in the transaction. Closing costs are typically between 2 and 5% of your purchase price.”
Many times I've heard first time home buyers be completely shocked about the amount of money that it was going to take to pay for closing costs. Just think, your closing costs could equal the amount that you have saved for your down payment, if you have a low down payment program!
Here is a list of just some of the fees/costs that may be included in your closing costs, depending on where the home you wish to purchase is located:
- Government recording costs
- Appraisal fees
- Credit report fees
- Lender origination fees
- Title services (insurance, search fees)
- Tax service fees
- Survey fees
- Attorney fees
- Underwriting fees
Can I avoid paying closing costs?
There may be ways to decrease or defer your closing costs, but you should definitely talk with your lender and real estate agent. There are no mortgages available that allow you to be able to roll the closing costs into your mortgage, but that's a good thing because you would just end up paying interest on that as well.
Another popular option is for home buyers to negotiate with the seller over who pays these fees. Sometimes the seller will agree to assume the buyer’s closing fees to make the deal happen, which is known in the industry as ‘seller’s concession.’
Talk with your lender and agent early and often to determine how much you’ll be responsible for at closing. Finding out you’ll need to come up with thousands of dollars right before closing is not a surprise anyone is ever looking forward to.