25 Apr 2018

Mark Zawaideh

How Closing Costs Break Down


closing-costs-guideIt's not uncommon for new homebuyers to forget that there additional costs on top of the listing price when it comes to home sales. Closing costs is a term that buyers will frequently hear as they tour each potential prospect and compare amenities, but they may not realize that closing costs can vary significantly from home to home. They may not even realize that they have a certain degree of power when it comes to who pays for them. For a better chance at being able to afford it all, see how closing costs breakdown.

Total Costs

Closing costs are usually between 2 – 5% of the original purchase price of the home, and include everything from real estate agent fees to property taxes. That's a big spread to work with—especially if the buyer chooses a luxury home! Many of the costs are fixed, but some of the costs are dependent on where the home located. For example, some states require buyers to hire an attorney to review and approve the home buying paperwork.

Hard Specifics

Buyers who put down less than 20% of the payment price of the home are subject to private mortgage insurance, which can add on a major chunk of change to closing costs. They'll need to pay a title company to investigate potential secrets of the home that may interfere with the validity of their new ownership. Finally, buyers pay the lender, appraiser, and relevant city officials in order to push the home sale through. While new homeowners are allowed to use their mortgage to pay for closing costs, it's highly recommended buyers pay in cash so they don't risk going outside their loan approval bracket.

Asking Questions

There are ways to get around paying certain costs by paying attention. Lenders are known to tack on a number of different fees that may sound necessary but are really just an attempt to make up for low-interest rates or a fear the buyer will default. This is true whether a buyer chooses a fixed-rate or an adjustable mortgage, so consult a financial planner or an experienced real estate agent to get the real story behind the fees. There are also ways to waive certain buyer privileges to avoid paying closing costs. So if the home recently went through an inspection independent of the selling process, a Harrison buyer may choose use that report instead of paying for a brand new one.

Negotiating Savvy

Buyers might be surprised at just how much they can lower their closing costs if they play a little hardball. Sellers may be willing to split the costs or cover them completely if they're in a rush to sell the home. The amount a seller can contribute is capped depending on the type of loan the buyer chooses, but there is some wiggle room for buyers who know how to massage the numbers. (The other option is for sellers to lower the price of the home by the total closing costs.)

No matter what the closing costs happen to be, buyers are highly encouraged to have them itemized so they can approve each one. While certainly more time-consuming (in what is already a lengthy buying process), it's pivotal for buyers to understand who is being paid for what and why. Ideally, buyers should be doing all of this with the help of a real estate professional who can verify the costs as well.

Topics: Buyer Tips & Mortgage News