When it comes to home buying and finances, there are two main upfront costs to think about— the down payment and closing costs. In this blog, we’ll be talking all things closing costs; particularly what they are and how you can prepare for them ahead of time.
So, what are closing costs?
The term “closing costs” encompasses all of the fees associated with taking out a mortgage and completing a real estate transaction. The fees that usually make up the bulk of closing costs include (but are not limited to) the following:
Property-Related Costs
| Appraisal Fees | This is used to make sure the home is worth the sales price. Most appraisers charge $300 to $500 for their services. |
| Escrow Fees | Escrow is the process through which a neutral party holds funds (typically a percentage of the property’s sale price) until a transaction between a buyer and seller is complete. A portion of these fees may be required upfront. |
| Flood Certification | If your house is in or close to a flood zone, your lender may require additional documentation. This involves paying around $10-20 for a certification from the Federal Emergency Management Agency (FEMA). |
| Home Inspection | This is the fee to look for damage and defects within a property. This is non-refundable, and there’s no guarantee the seller will make repairs or lower sales price based on the inspection. |
| Property Taxes | The buyer typically pays property taxes due starting from the date of closing, through the end of the tax year. |
| HOA Fees | This is an annual fee that you may need to pay if you’re buying in a development with a homeowner’s association (HOA) |
Loan-Related Costs
| Title/Attorney Fees | Title and Attorney fees include necessary government filing fees, escrow fees, notary fees, title search fees and other costs related to transferring the deed. The cost of title and attorney fees will vary from state to state. |
| Lender Fees | These fees cover administrative costs, pulling your credit and any other fees associated with your transaction. |
| Loan Origination Fees | Origination fees are paid to the lender to obtain a mortgage (and are usually listed as a percentage of the loan amount). These include the cost to process the loan. |
Other Costs
| PMI (Private Mortgage Insurance) | PMI is typically applied when a buyer puts down less than 20% on their new home. It can be rolled into your monthly payments, but it can also be paid at closing. Paying upfront could potentially save you money in the long run. |
| FHA, VA and USDA Fees | Fees on FHA, VA, and USDA loans differ from those charged on conventional loans. For instance, VA Loans have a one time, upfront Funding Fee, whereas USDA will have an upfront fee and then a yearly additional fee. |
Whew. We know that was a lot. If you have any questions, we will be more than happy to answer them.
How to prepare for closing costs
Preparing for this aspect of the loan process ahead of time can help you comfortably cover your down payment and closing costs before you start making offers on homes.
Start saving early.
The sooner you start to budget and put money away, the easier it will be to cover your closing costs. Some buyers find it helpful to utilize budgeting apps such as Mint to keep track of spending habits and are making their finances work for them.
Work with your Real Estate Agent and Loan Officer.
Your Real Estate Agent and Loan Officer are your best resources in the home buying process. In some cases, there may be opportunities to reduce fees – sometimes by having the seller cover costs. Your Agent and Loan Officer can advise you on which fees may be negotiated and will be your best resources throughout the whole process.
Work with OVM loan experts.
Buying a home is a big deal, but we’re here to help make it seamless. Call us today or get started on your loan application online.