Home Buyers: Don’t Let Closing Costs Catch You Off Guard

Many home buyers factor in paying for a down payment but they often forget about the closing costs due at the conclusion of the sale.  These costs are a hefty sum, coming in at anywhere from two to seven percent of the purchase price.

Home buyers should never look past the cost of closing costs when buying a home. To help, keep the following in mind.

Paying for Closing

Closing costs are something both a buyer and a seller will have to pay.  Buyers do pay the majority of closing costs at anywhere from three to four percent of the purchase price leaving one to three percent for the seller.  

There are different times these fees may be paid.  For example, some fees are due before closing and others are due on the day ownership is transferred.

What Buyers Should Expect

The reason that buyers pay for the majority of closing costs is due to the fact most of the fees are tied to the mortgage.  Some of the fees at closing will be paid whether paying cash or when paying with a mortgage. However, cash-paying home buyers see a significant decrease in costs.

Buyers can expect to pay fees to cover paying for the lender to process the loan, a fee for the lender to obtain a credit report, plus a fee for the underwriter to review that credit.  There will be fees for the appraisal and the home inspection to be completed, as well. These are paid at the time of the inspection.

Buyers should also expect to pay for a title search.  This ensures that the property is free and clear of any liens.  If there would be anything that slipped through it would spell trouble for the entire sale.  Finally, there are taxes that much be paid on the home loan.

What Sellers Should Expect

A home seller does not escape from paying closing costs.  They will need to pay the title company a closing fee. They must also pay taxes on the sale of the home.  If they are using an attorney, they are responsible for their pay. Finally, they will pay to transfer the title from their name to the new owner.

These costs are relatively low for the home seller.  However, they have their own share of fees to worry about.  The homeowner selling the home will pay a real estate agent if they used one.  The price for a real estate agent will be anywhere from four to seven percent of the purchase price of the home.

Hard to Quote

It is very difficult to quote for closing fees unless talking directly to the lender and legal office being used.  Every area has different requirements for the fees that will be paid during a sale. This can make every home sale a little different in terms of closing feels.  

Depending on where a home buyer lives they can end up paying a lot more in closing fees compared to if they lived somewhere else.

Learning More

Talk with the real estate agent and lender involved to get a good idea of what the closing fees will be.  They should be able to provide a quote for what they think the closing fees will be. Once the sale is in process, there will be a more defined quote.  

At least three days prior to closing there will be a closing disclosure provided. This disclosure will specify all the costs that were originally quoted.  

Always review these documents closely.  If anything is vastly different than the original quote, check why the change has happened.  It is common to find mistakes in this type of document.

Pay Less

There are ways to help reduce the cost of closing and some discounts are available.  Some banks will offer programs to their members to entice them to use them for loan services.  Always try to close at the end of a month. It will reduce the amount that needs to be paid in interest.

Closing costs are something a buyer can negotiate with a seller.  They may be able to get the seller to help pay for a portion of these costs, if not all of them.  Some lenders will allow buyers to tack on the cost of closing onto their loan. It is also worth noting that discounts for closing costs can be found for those that have served in the military or are members of a union.