For first time buyers, the amount of money that is needed to seal the deal can often come as a bit of a shock. Known as the closing costs of the deal, this amount of money involves a number of different factors that can add up to several thousand dollars out of pocket for the buyer. You should be prepared ahead of time to pay this amount—or find alternative ways to take care of them.
What Things Fall Under Closing Costs?
Some of the things you will commonly see included in closing costs are a number of fees and types of insurance. First of all, there are origination fees on the loan, which are usually a percentage of the amount financed. You will also see an appraisal fee and a credit report fee, both of which the buyer is usually responsible for. There are also fees for the home inspection and other possible fees such as bank processing fees and flood certification.
You will also have to pay for the homeowner’s insurance policy on the home for the first year in order to close, and for title insurance. You may also have to pay property taxes on the home.
How Much Will It Be?
All of these costs are so varied that there is no way to guess at them. They are determined in some cases as a percentage of the loan amount, and in other cases based on the home itself, such as with homeowner’s insurance. In most cases, closing costs are thousands of dollars.
You should be provided with an estimate of the closing costs ahead of time so that you aren’t shocked with the amount at closing.
Ways To Pay
Of course, you can opt to pay all of the closing costs out of pocket in cash, but there are other options as well. Many people choose to roll some or all of the closing costs into the mortgage itself, raising the monthly payment slightly but avoiding the need for a large amount of cash. In some cases, you can also get the seller to pay some of the closing costs, but this will need to be agreed upon ahead of time.
Closing costs are a part of every loan and involve paying fees for the many services required to close on a loan. Be prepared ahead of time, and you won’t find yourself surprised by the amount that is due.