Closing costs are something that every home buyer has to face, but many don’t completely understand what they are when they first start shopping for a home. They can be quite expensive, and in past years, have increased on average. Here’s what you need to know about closing costs:
What are closing costs?
Closing costs are fees associated with the closing of a real estate transaction. Closing costs can be incurred by either the buyer or seller, and occurs when the title of the property is transferred from the seller to the buyer.
What charges are included in your closing costs?
Depending on where you live and what kind of property you own, your closing costs can include a variety of factors. These factors can include an appraisal fee, a fee for running your credit report, inspection fees, insurance fees, loan fees, deposit fees, and more.
How much are closing costs?
Home buyers can expect to pay between 2 to 5 percent of the purchase price of their home in closing fees with prices varying due to taxes and location. Lenders are legally required to provide a loan estimate which will help you determine a starting point for your closing cost. Often times, closing costs can include unnecessary fees, such as mailing and administrative costs. If you encounter a large number of unnecessary charges, you can walk away from the loan and search for other lenders who can offer lower closing costs.
Can you avoid closing costs?
You can’t fully avoid closing costs, but it could be possible to transfer them. You could ask the seller to pay some of the closing costs if you are short on money. The worst response you could hear is, “no.” You could potentially ask the lender to pay the closing costs as well. The caveat with this is that while lenders may agree to pay part or all of the closing costs or roll it into your mortgage amount, you can typically expect to see a higher interest rate on the loan.
How can you get the most accurate closing cost estimate?
Your final closing costs shouldn’t be a surprise. Within three days of receiving your application, your lender must provide a good faith estimate—a ballpark figure—that lists your estimated costs and any anticipated factors. Prior to closing, you’ll get an HUD-1 settlement statement that itemizes an updated and final closing cost. If the final statement is nowhere near the original good faith estimate, question your lender about it.
To learn more about closing costs and how our professional lenders can help you close on the home of your dreams, visit Financial One Credit Union for more information.