Closing CostsWhen you’re thinking of buying your first home, there are costs you might not have originally anticipated. When you make your offer, you may be asked for a good faith deposit that will come out of pocket. Also out of pocket is the down payment on your home, which is usually around 20 percent of the home’s asking price. Then, you have closing costs to cover. The term closing costs can be confusing for first-time home buyers, so here are some tips for understanding and preparing for closing costs when you’re ready purchase your home.

During the purchase of the home, you’ll likely be seeking a home mortgage loan from a lender. The lender will run your credit report, then ask for an appraisal from a professional appraiser. The home will then go through a home inspection to make sure everything is in working condition and in good order. There will be a separate pest inspection for things such as termites. The land may need to be surveyed to evaluate property lines. There are attorneys and other professionals who make sure the title is free of liens or past-due mortgage payments, and who handle transferring the title from the previous owner to you. And there are clerks who handle the filing of the new title. All of these steps in the process include fees that add up and are all encompassed under the term, “closing costs”. In other words, no single person determines what the closing costs will be on the purchase of a home. Instead, the fees for these services accumulate and together are grouped in the term closing costs.

Read the bank’s estimate of closing costs carefully. Some banks inflate their closing costs with things like courier fees or other unnecessary costs. If this is the case, you have the right to decline the loan and seek your home mortgage loan elsewhere. Your real estate agent will also help you understand what closing costs are involved in the purchase of the home he or she is helping you buy.

Closing costs are usually estimated to be between two and five percent of the purchase price of the property, although the more general window suggests closing costs anywhere between one and eight percent of the purchase price of the house. When you make an offer on a home, the lender has three days to provide you with a good faith estimate of what the closing costs will be. An estimate is subject to change, so don’t be surprised if your actual closing costs differ slightly from the estimated closing costs. Then, one day before closing on the property, the lender will provide you with an HUD-1 document listing the actual closing costs. A recent survey shows that buyers pay, on average $3,700.00 in closing costs.

Lenders do not typically cover closing costs in the home mortgage loan. Closing costs on the purchase of a home are usually paid out of pocket by the buyer during the closing process. However, there are some home loans that will wrap the closing costs into the mortgage. Having the closing costs wrapped into the mortgage will likely cost you more in the long run because you’ll be paying interest on the closing costs.

It not uncommon to ask the seller to cover closing costs, so that can be negotiated in your contract. But in the event of a bidding war, including closing costs by the seller could mean the difference in your offer being accepted or declined in lieu of an offer that has the buyer paying closing costs. Or, the seller could counter offer, declining to cover closing costs.

You may be asked to make a good faith deposit on the home you’re purchasing when you make your offer, and then your down payment, and closing costs. Before you get excited and sprint into the purchasing process, be sure you know what your overall budget is for the purchase of a home. Anticipate many professionals being involved with the transfer of the property, and know that you’ll be paying for all of those services collectively in your closing costs.

To learn more about closing costs and other things you need to know when buying a home, call Doug Hansen at 616-485-8955.

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