So, you’ve found your dream home and think you're ready to make an offer. However, have you considered the costs beyond the purchase price? Closing costs are an important consideration when buying a home, and it’s essential you understand what they are—and how much they cost—so you can prepare your budget accordingly.
What are Closing Costs?
The term “closing costs” refers to fees associated with the home purchase that aren't included in the purchase price. Closing costs vary but can include:
Appraisal fees
Home title search fees
Loan origination fees
Title insurance fees
Attorney fees
Commission rates
Transfer taxes
These add up quickly, so it's important to review your closing disclosure carefully. Be sure to ask your real estate agent or lender for clarification on anything you don’t fully understand.
How Much Money Will I Have to Pay to Close on My Home?
Typically, experts recommend budgeting around 1%-6% of the loan amount in preparation for closing costs. Keep in mind, closing costs do not include your down payment—that is a separate cash payment to the seller that goes into escrow until the sale is finalized. Closing costs vary based on your loan amount, location, and current real estate market trends. Plus, closing costs are negotiable, so depending on the circumstances surrounding the sale, you may be able to reduce the closing costs you owe. Both the buyer and seller pay closing costs, though typically only the buyer needs to pay out of pocket.
Why Budget Ahead of Time for Closing Costs?
Closing costs are often more expensive than first-time home buyers realize. Many shoppers will save money for a down payment but forget all about closing costs. Though some loan options allow you to roll closing costs into the mortgage, some companies require you to pay for closing out of pocket.
By budgeting for closing costs ahead of time, you'll be in a better position to navigate the home buying process and avoid unwanted surprises.
Don’t let the home buying process catch you off guard—check out our mortgage and loan resources to guide you through the process and make home-buying simpler.