Now that you’ve made the decision to buy a home and are ready to move forward, it’s important to plan for the typical costs involved in the homebuying process. While your down payment is likely the biggest expense on your mind, don’t overlook closing costs. Here’s what you should know:
What Are Closing Costs?
In simple terms, closing costs are the additional fees and payments required when finalizing your home purchase. Although they vary depending on the price of the home and the financing, all buyers are responsible for these costs, so they shouldn’t come as a surprise. However, some people forget to include them in their budget. According to Freddie Mac, this stage of the homebuying process generally covers:
- Application fees
- Credit report fees
- Loan origination fees
- Appraisal costs
- Home inspection fees
- Title insurance
- Homeowners insurance
- Survey fees
- Attorney fees
Some of these are one-time costs included in your closing fees, while others, such as homeowners insurance, represent initial payments toward ongoing obligations you’ll have once you own the home.
How Much Are Closing Costs?
According to Freddie Mac, closing costs can vary significantly depending on your location and the price of the home. Typically, you should expect to pay between 2% and 5% of the purchase price in closing fees.
To get a better sense of what to budget for, consider an example: if you’re looking to buy a home at the current median price of $422,600, your closing costs could range from approximately $8,452 to $21,130, based on Freddie Mac’s 2-5% estimate.
Remember, if you’re buying a home priced higher or lower than this, your closing costs will adjust accordingly.
Tips To Reduce Your Closing Costs
If you’re looking for ways to potentially lower those costs, NerdWallet suggests a few strategies that might help:
- Negotiate with the Seller: Some sellers may be open to covering part or all of your closing costs, especially in today’s market where homes are taking longer to sell. With sellers possibly being more motivated, you may have more leverage in negotiations. Don’t hesitate to ask for concessions, such as covering the cost of the home inspection or providing a credit toward your closing fees.
- Shop Around for Home Insurance: With rising home insurance costs affecting many regions, it’s important to explore all your options. Insurance companies offer different policies and coverage, so obtaining multiple quotes will help you compare. Selecting a policy that provides solid coverage at a competitive price can make a significant difference in your overall costs.
- Explore Closing Cost Assistance: Similar to down payment assistance programs, there are also options available to help with closing costs. These programs vary by location and may be designed for different income levels, specific professions, or particular towns and neighborhoods. To learn more, Experian suggests:
“Your real estate professional should be able to steer you toward applicable programs, and the U.S. Department of Housing and Urban Development (HUD) maintains a helpful resource for finding home buying assistance programs in every state.”
Bottom Line
It’s essential to plan for the fees and payments involved when closing on your home – and it doesn’t have to catch you off guard. With the right professionals supporting you, you can ensure you’re well-prepared. Let’s connect so you have a trusted resource for more tips and guidance throughout the process.
