What are closing costs? What is included in these costs and how much should you save for them? Today we will cover all the need to know information regarding these costs.
What are closing costs?
These are expenses that buyers and sellers will pay to complete a real estate transaction. There’s a common misconception that many of these costs just go to your lender. This is a myth. These closing costs also cover third party services that are needed to complete the transaction. It’s important to understand that these costs are not included in the price of the property. So, if you’re browsing real estate sites and stumble upon a beautiful $200,000 home, keep in mind that budgeting for these additional costs will be needed.
What are the different types of costs included in closing costs?
These costs can be broken up into two sections, pre-paids and fees, which can include but are not limited to:
- 1 year of insurance premium (applicable to FHA, VA, and USDA loans)
- Property taxes (3 months of taxes)
- Homeowners Insurance (3 months of insurance)
- Survey Fee
- Credit Report
- Closing Fee
- Title Search Fee
- Flood Determination
- Courier Fee
- Loan Origination Fees
- Discount Points
- Appraisal Fees
- Attorney Fees (Varies by state)
- Title Insurance
How much should I set aside for closing costs?
We recommend that you save around 2.5% of the home’s purchase price to cover your closing costs.
- $200,00.00 home loan
- 2.5% total in closing costs
- $5,000.00 would be the estimated closing cost total
Keep in mind that due to different factors and circumstances, we cannot determine the exact amount as it can be less or slightly more. One strategy to lower your total cost is by negotiating with the seller to pay for some or all of your closing cost. Proceed with caution if you do ask. In a competitive market, asking for these costs to be covered could cost you to lose your offer.
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*The information in this article has been provided strictly for educational purposes.