Common Closing Costs (and How to Limit Them)1 min read

Buying a new home is one of the most exciting events in your life, but the enormity of it all can be daunting. You’ve got to set your price range. Then you need to research your new neighborhood. And before you move, all your belongings will have to be packed into boxes.

With everything going on, it’s easy to forget about closing costs—a catch-all term for the fees and services that come with home buying. It’s an understandable oversight, but depending on where you live, the closing costs can add up to 2%–5% of the home’s total cost. That’s thousands of dollars! Make sure closing costs don’t take you by surprise by reviewing the most common closing costs and a few ways to limit them.

Common Closing Costs

The names lenders use for different closing costs vary greatly, so don’t be afraid to ask questions if you’re not sure what something is. Knowing exactly what you’re paying for is important so you can truly compare loan offers.

  • check
    Appraisal Fees:   If you’re buying a new home, you’ll want an unbiased third party giving you a number for what the home is actually worth. (In fact, lenders require an appraisal to make sure you’re not paying more than the home is worth.) Appraisers compare the home to recent sales in the area to come up with a figure for your home.Appraisals don’t always get lumped in with closing costs. Sometimes other parties will pay for them. If you’re on the hook for it, prepare to spend around $500, though the size and location of the property can cause the price to vary. You may also need to pay this fee well before closing.
  • check
    Title Insurance:  It’s hard to know a property’s history with absolute certainty, and that’s where title insurance comes in handy. Title insurance protects both you and the lender if the home has any liens, outstanding lawsuits, or other title problems. Title insurance isn’t mandated by law, but your lender will almost certainly require it.
  • check
    Credit Report Fee:  Any potential lender is going to want to check your credit report before issuing a loan. While some lenders pick up the credit report fee themselves, you should be ready to cover the cost. Luckily, the costs aren’t extreme—it shouldn’t be more than about $50.
  • check
    Escrow Account:  Similar to how renters pay first and last month’s rent upfront, homebuyers have to set aside money for future property tax and homeowners’ insurance payments. These payments are held in what’s called an escrow account, in case property taxes or insurance bills suddenly spike. It’s common to pay a year’s worth of insurance payments at closing, plus an additional two months of insurance and property tax payments as a buffer into your escrow account. Your mortgage company will pay your tax and insurance bills from that account.
  • check
    Prepaid Interest: Your monthly mortgage payment actually covers the previous month. If you close in mid-October, your first mortgage payment will likely be due on December 1. Lenders will collect prepaid interest on the loan between your closing day and the end of the month you close. It’s a per-day rate (yearly interest charge/365 days=one day of interest payment). This is due at the closing day.
  • check
    Wire Transfer Fees:  Lenders will want to you to pay through wire transfers. That’s the most secure way to move around money, but it comes at a cost. Depending on the service you’re using (which the lender will determine), you can expect these fees to cost as little as $25 or as much as $100.
  • check
    Recording Fee: The recording fee is the cost of making the sale official with the government. The exact cost varies by county. Some counties charge a flat rate, while others charge by the size of the document.
How Can I Limit Closing Costs?

When you ask for a loan, you’ll get a good faith estimate of how much that loan will actually cost you. In addition to interest rates and lending terms, this report will also include a line item report of all the expenses you’ll be responsible for when the sale closes. It’s a good idea to compare all of these factors to understand the true cost of the loan. Note that these numbers are not final and that they can change. Three days before closing, the lender will update the estimate with more accurate figures.

Some lenders promote “zero closing cost” mortgages. As the name implies, these offers roll closing costs into the mortgage, which drastically reduces the cash you need to close a sale. But keep in mind, you will pay for the closing costs eventually, and zero closing cost loans often come with higher interest rates. That means you can end up paying more over time compared to a conventional mortgage that has closing costs associated with it.

An important thing to remember is that all the closing costs will be outlined in the good faith estimate, and there are resources to help ease your financial burden. If you have any more questions, please do not hesitate to give us a call!

Interested In Obtaining Mortgage Pre-Approval?

  Here at GTG Financial, we encourage each of our clients to  to have an initial mortgage planning discussion surrounding your current situation, goals/budget, and timeline.  There are so many additional factors that go into qualifying for a home loan today, it’s important that you are working with a professional that understands the ins and outs of the process and current market trends.

To get started,  please click Apply Now.

This entry has 0 replies

Comments open

Leave a reply

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>