When purchasing a home, there are several fees you have to understand and factor in to your budget before you officially close. Here's a breakdown of what you need to know!
What are closing costs?
They are simply fees; fees for services required to finalize your mortgage. Typically, the buyer is responsible for paying these costs unless otherwise negotiated to have the seller contribute. Fees include (but not limited to) attorney, appraisal, inspection, government taxes, title insurance, home insurance, mortgage insurance, and property taxes.
How much are closing costs?
Closing costs usually total about 2 to 5 percent of the home's purchase price, and they generally vary depending on the property purchased and the state you live in. Your lender will provide you with an estimate of your closing costs following your loan approval. Sometimes that number can change slightly, but your final costs should be similar.
How can you reduce closing costs?
Some of the fees that fall under your closing costs can be reduced by doing your own research on lenders at the beginning of the home buying process. Then, compare any potential discounts or deals they offer before making your choice! Additionally, you can attempt to negotiate with the seller to cover part of all of your closing costs.
Can you avoid upfront closing costs?
If you think you will be unable to afford the closing costs upfront, you can opt to roll them into your loan. However, choosing this route often costs you more in the long run. At a minimum, you'll have to pay interest on your closing costs, or depending on your lender, you may face a high interest rate on your entire loan.