Once You Buy a Home: Real Estate Closing Cost Details

When exercising your legal rights to purchase a home, it is important to be aware of the potential expenses that are often associated with real estate closing costs. Closing is generally considered the final step in buying a home. At this stage, a price has been agreed upon, inspections and appraisals have been carried out, and hopefully any last minute arrangements or negotiations have also been discussed and agreed upon.

All transactions involving the purchase of a home are different, but in each case, the seller and buyer agree on who will pay the specific closing costs. In this article, we are only going to talk about those expenses that buyers are usually responsible for and end up paying if they do not agree with the seller. Future articles will discuss the expenses that sellers must cover and how to ensure that these real estate closing costs are kept as low as possible.

Expenses buyers must cover include fees for services that are required when applying for a mortgage or for services that could ultimately protect the buyer in the event of unexpected situations. Since each contract is negotiable, these expenses can be paid by either party (seller or buyer), but are generally on the buyer’s side.

In general, real estate closing costs can range from 3 to 5 percent of the final price to purchase a home, but buyers should closely examine each lender’s costs, as some lenders may try to add unnecessary fees or costs . The best way to see the breakdown of real estate closing costs is by reviewing the Good Faith Estimate that will be provided to you within three days of completing your mortgage application once you begin the procedures to purchase your home. . Estimates from various lenders can be compared with each other to find the best deal. It’s also good to know that having different mortgage lenders pull your credit won’t lower your credit score like other forms of debt (credit cards, cars) can. Generally, these types of credit applications (also known as credit extraction), taken for the purchase of a home, are considered good debt by the credit bureaus. This will help you in the process of finding the best lender with good options for real estate closing costs.

Keep in mind that the lower your interest rate, the higher your real estate closing costs will be because of the points you’re paying up front. Points are interest paid in advance to get a lower overall rate once you buy a home. Keep in mind that it may be more beneficial to pay fewer points and get a higher interest rate in some cases, and it may be better to pay more points for a lower rate in others. Talk to your mortgage lender for more information once you’re ready to buy a home. Depending on your situation, they should be able to explain which option will be best for you.

When it comes to real estate closing costs on a home purchase, there are several issues to consider:

Mortgage Application FeesNote: When you apply for a loan to buy a home, most lenders will charge you a fee (which will not be refunded, even if you are denied the loan or decide not to accept it). This fee can be applied to final real estate closing costs or paid up front. Ask the individual lender what their procedure is.

Points: As stated above, points are prepaid interest that can result in a lower overall interest rate. There are calculators online, as well as those provided by various lenders, that can help you figure out the best way to use points to your advantage when buying a home.

appraisal fees: To determine the market value of a home, an appraisal must be performed by an independent inspector. It is usually the buyer’s responsibility to pay the appraisal fees to make this happen. Note that the buyer can request a copy of the appraisal from the lender after it has been completed.

Inspection fees: Generally, the buyer must also pay inspection fees as part of the real estate’s closing costs. This ensures that the house is inspected to make sure it is in good condition and to catch any problems that may be discovered. Some lenders will cover this fee, so ask before you sign any contracts.

prepaid property insuranceNote: During the closing process, many lenders will require you to have homeowners insurance before you buy the home. This insurance coverage is generally the responsibility of the buyer, but some lenders may also cover it. The fees are often part of the closing costs.

prorated interest: The closing date may not coincide with the date that interest on a mortgage is normally due. In that case, a calculation is made to take into account the extra days in relation to the payment of interest. This amount is part of the real estate closing costs as well.

There are many other fees that can be built into real estate closing costs, including recording fees, inspection fees, a brokerage fee, home warranties, and various taxes. All of these should be discussed with the lender ahead of time so the buyer knows what they are responsible for on closing day. Feel free to ask as many questions as you can about real estate closing costs. At the end of the day, an informed and educated buyer will always be better off and can sleep easy in their new home.

conclusion

If you’re ready to buy a home, you want to make sure you’re not caught off guard by real estate closing costs. Learn what fees you will have to pay and which ones can be waived. Get a final estimate from your lender before your closing day and make sure these fees are part of your budget. That way, your closing day can be more about keys and less about fees. Enjoy!