When buying a home, it’s important to have a budget and make sure you plan ahead for certain homebuying expenses. Saving for a down payment is the main cost that comes to mind for many, but budgeting for the closing costs required to get a mortgage is just as important.
What Are Closing Costs?
Closing costs are the fee that you need to pay when closing on your new home. These typically include title insurance, origination fees, underwriting fees, document preparation fees, and more. You should expect these fees to be between 2 and 5 percent of the total cost of your new home.
For example, for someone buying a $300,000 home, they could potentially have between $6,000 and $15,000 in closing fees. If you’re in the market for a home above this price range, your closing costs could be greater. As mentioned above, closing costs are typically between 2% and 5% of your purchase price.
All the paperwork!
When you close on your new home there is a lot of paperwork, and it is really important to read through it all. Working with a great real estate agent (find one here!) a great lender (find one here!) and a great real estate attorney is important so that you don't get overwhelmed by all that paperwork at the last minute. These professionals will help you know what is expected and help you understand the documents ahead of time.
One of the most important pieces of paper you will see is your closing disclosure. This is the form that is going to break down for you all of the fees associated with your transaction. It will show the terms of your loan, final closing costs, and any outstanding fees for things like inspections. This form is due to you three days before closing so that you have time to review and make sure that it is correct. If you have any questions about the numbers or what these numbers mean be sure to reach out -- your Realtor is a great resource for helping you understand all the bits and pieces that are included in your closing disclosure.
As home prices are rising and more buyers are finding themselves competing in bidding wars, it’s more important than ever to make sure your plan includes budgeting for closing costs. Work with your lender and a local real estate professional to be sure you have everything you need to land your dream home.