Closing costs are often the expense not thought of when considering the purchase of a home. We’ve all calculated how much down payment we need to have for the price of a home, but what about closing costs? How much are closing costs for a home?
Consider your down payment.
If you’re a first-time homebuyer you can put as little as 3% for a down payment. If you’re not a first-time buyer, and you’ve owned a home in the three previous years leading up to the purchase, you’ll need a minimum of 5% for the down payment. Now, there are down payment assistance programs available and some of those loan programs include V. A. Loans, for eligible veterans, and USDA loans in rural areas may have this option as well. You’ll want to consult with a licensed mortgage consultant to get more specifics on that because those are unique programs.
Secondly, once under contract, you’ll need to have a home inspection and an appraisal.
Your real estate agent will highly recommend a home inspection because it will verify the safety and condition of the property. This can and will likely include the foundation of the property, electrical, plumbing, and more. Typically, the inspection can cost as little as $200, however, you can be charged a few hundred dollars based on the property location, and uniqueness of the property. The same applies to appraisals. An appraisal will be required by your lending company. The purpose of an appraisal is to verify that the value is in line with the amount the lender will be lending and that the property has the market value the contract reflects.
An appraiser will go out to the property and do a visual inspection of the home. They’ll look for any potential health or safety issues based on visual observation but they’re not going to do an in-depth inspection as a home inspector would. An appraisal can cost from $400 to upwards of a thousand dollars depending on the uniqueness of the property.
Thirdly, you’ll want to consider your prepaid items.
Prepaids are items that you pre-pay in advance, such as daily interest, property taxes, and home insurance.
The property taxes are calculated from the day you occupy the property. You’ll have homeowner’s insurance that will be paid a year in advance. You’re going to have your daily interest based on the day you close from the time you occupy the property. It’s also why you don’t have a mortgage payment the following month when you close your mortgage loan. For example, if we’re in April and you close your loan you wouldn’t have a May 1st payment because you’re going to pay daily interest at closing which will put your first mortgage payment due out to June 1st.
Fourthly, we’ll take a look at the title and other fees.
Title fees are negotiable between you and the seller but are typically paid for by either you or the seller once you come to an agreement. The title company will be set by the title Agent. The cost of title fees can range from $2,000 to $4,000 depending on the title company and based on the uniqueness of the property such as the size of the home, and the size of purchase you’re going to make.
These dollar amounts are a guide, but you want to make sure you have additional funds above and beyond your down payment. Don’t be caught off guard. All these expenses could add up to as much as $5,000 above and beyond your down payment that you’re going to need to bring at closing. Closing costs are negotiable and you can ask the seller to cover some of these expenses, however, you’ll want to consider the market conditions at the time of purchase.
If you have additional questions, need any support, or need a Pre-Approval we’re always here to help.