Home buyers need to be prepared to pay for some expenses when buying a home. Closing costs are one of the more difficult to understand expenses because they're made up of many different fees. Closing costs also cause confusion because the buyer won't know how much money they owe until close to the end of the escrow period.
All of this uncertainty can sometimes lead to some confusion that can actually disrupt the home buying process. Knowing what to expect can help make the home buying process less stressful for buyers.
What Are Closing Costs?
Closing costs are the fees that are paid at the end of the home purchasing process. These fees are usually paid at the same that time the loan funds. Closing costs are usually between 1 and 5% of the cost of the home. The amount that the buyer will pay depends on a variety of factors that are hard to predict. Closing costs vary from one sale to the next and from one state to the next.
As the closing of escrow draws near, the lender can start to gauge how much the home buyer will have to pay in closing costs. Since the buyer will not know how much they'll owe exactly, the buyer should plan to have 5% on hand to hand over when the escrow period ends.
Who Pays Closing Costs?
The home buyer pays for the bulk of the closing costs, but there are a few costs that are charged to the seller. This includes but is not limited to the cost of the home warranty for the house (a bonus that is usually offered to the buyer by the seller) and the commission for both real estate professionals. Sometimes, if a buyer is short on funds, the seller may pay all of the closing costs. This is much harder to negotiate in a seller's market.
What's Included In Closing Costs?
Closing costs consist of many fees. Some of the most obvious and expensive fees are listed below.
An East Nashville home buyer who is taking out a loan to pay for a house will be required by the lender to get homeowners insurance. Typically homeowners insurance premiums are around $1,100 for the year. The full year is due at the close of escrow.
Sometimes this is paid during the escrow period before the appraisal occurs, other times this is paid at the close of escrow. The appraisal fee is usually a few hundred dollars and is used to pay for the appraisal required by the mortgage company.
This is one of a variety of fees that may be paid to the lender for processing the application and funding the loan. Different lenders will have different fees or different combinations of fees. Home buyers who want to purchase a home as cheaply as possible may be able to shop around and get a lender that has fewer fees than others.
The buyer must pay the lender for the credit report. This is usually a fairly minor expense.
Work With Your Lender
The best way to prepare for closing costs is to work with a lender who keeps you informed and who has good customer service. For more information about closing costs, contact your lender. You can also ask questions of your real estate professional.