Planning ahead is crucial when purchasing a home! Since many home buyers focus on saving for a down payment, they may not anticipate the closing costs that they will be responsible for. In order to avoid being caught off guard during your home closing process, it is essential to have a clear understanding of what closing costs are and how much you should budget for them.
What Are Closing Costs?
One of the most significant expenses that home buyers will encounter is closing costs. While the specific types and amounts of closing costs can vary depending on a number of factors, it is important for buyers to understand what they are. According to Bankrate:
“Closing costs are the fees and expenses you must pay before becoming the legal owner of a house, condo, or townhome…Closing costs vary depending on the purchase price of the home and how it’s being financed…”
In other words, closing costs are the fees and charges that a home buyer is required to pay at the end of the home buying process, when the property title is transferred from the seller to the buyer. Because some closing costs are negotiable, it is crucial to know what these costs include. In general, closing costs cover:
- Credit checks
- Title search and insurance
- Attorney’s fees
- Origination fee
- Application fee
- Underwriting fee
When you work with Michele Harmon Team, your Agent will work alongside you to negotiate a deal with the seller to keep your closing costs at a minimum.
How Much Will You Need to Budget for Closing Costs?
It is essential to understand the components of closing costs, but it is equally crucial to have a clear idea of the amount of money you will need to budget for them. According to Freddie Mac, closing costs usually range between 2-5% of the overall home purchase price.
For example, let’s suppose you come across a home that you wish to buy and its list price is $366,900. Using the Freddie Mac estimation of 2-5%, the total closing costs for this property would fall within the range of approximately $7,500 to $18,500. However, cash buyers have significantly lower closing costs because most closing costs go towards financing a loan.
Please note that if you are looking to purchase a home above or below this price range, your closing costs will correspondingly be higher or lower.
What is the Best Way to Ensure You’re Prepared for Closing Costs at Closing Time?
As you embark upon your home buying journey, take the time to understand all costs involved – from your down payment to closing costs. Michele Harmon Team can help you understand exactly how much you will need to budget for closing costs and connect you with a reputable lender. Together, we can answer any questions you may have. Give us a call at 713-818-1330 to get started today!