When purchasing a home, buyers often focus on having enough money for a comfortable down payment. However, as the transaction proceeds, other expenses start to add up, and finally at the end, you’re hit with closing costs. Unless negotiated otherwise, it is typical that the buyer pays for these closing costs which can get rather costly. So, what are closing costs?
Separate from the down payment, closing costs are the expenses associated with finalizing a real estate transaction. They include a variety of fees and charges that need to be paid at the closing of a home purchase. These costs typically cover services provided by lenders, attorneys, and other professionals involved in the transaction and can range from 2% to 5% of the home’s purchase price. However, the exact amount can vary depending on factors such as location, property type, loan type, and the specific terms negotiated in the purchase agreement. It’s important to be prepared for these costs and manage them as best as you can. Here are a few tips:
- Budget Accordingly: Consider closing costs when determining your budget for purchasing a home. Knowing the approximate amount of these expenses in advance will help you plan accordingly and avoid any last-minute financial surprises.
- Shop Around for Lenders: Different lenders may offer varying rates and closing costs. It’s advisable to compare offers from multiple lenders to find the most competitive rates and terms.
- Negotiate with the Seller: In some cases, buyers may negotiate with the seller to cover a portion of the closing costs. This can be done by requesting a seller’s concession or by adjusting the purchase price accordingly. Be mindful that you must be specific to a set price. For example, if you know your closing costs will be approximately $5,000 and you want the seller to cover half, you must request $2,500.
- Review Documents Thoroughly: Before closing, carefully review all the closing documents provided by the lender and title company. This will help you understand the charges and ensure that you are not being charged for unnecessary or duplicate services.
- Ask Questions: If anything in the closing documents or fees seems unclear, don’t hesitate to ask questions. Seek clarification from your lender, real estate agent, or attorney to ensure you fully understand the charges and are comfortable with the transaction.
Closing costs are an integral part of the home buying process. Understanding the components and estimated amount of these costs will help you prepare financially and avoid any surprises at closing. Take the time to research, compare offers, and ask questions to ensure you have a clear understanding of your financial obligations. By being aware of the components of closing costs and managing them effectively, homebuyers can navigate the closing process with confidence and ensure a successful and financially sound home purchase. As you navigate the world of closing costs and embark on your homebuying journey, I wish you a joyful and memorable Fourth of July. May your pursuit of homeownership be filled with excitement, financial prudence, and the freedom to create a place you can proudly call home. Until next week!
Eve Leombruno, 2023 MBOR President