Purchasing a home is a big milestone and is truly something to celebrate. You picked the perfect home, saved up for the down payment, and the only thing left to do is close on the house.
But before you’re able to close the deal, there’s, unfortunately, a whole laundry list of costs and fees to make the purchase official.
These closing costs can be worth a pretty penny, so it’s important to budget for them when you’re planning on a home purchase. But what exactly are these closing costs, and how much do you really need?
Read on to find out what closing costs you can expect and how much you should save.
What are closing costs? How much do they cost?
Closing costs are the fees you pay when you’re closing on your home purchase.
These fees are paid to your mortgage lender to finalize your loan and to third parties for costs related to the property itself.
The typical amount for closing costs is 3%-6% of your loan amount. For example, if your mortgage loan is worth $200,000, your closing costs would be around $6,000-$12,000. However, the specific amount will vary depending on the type of loan you have and your lender.
These closing costs are in addition to your loan amount and don’t include your down payment.
Closing Costs for Buyers
You will likely have several closing costs when purchasing a home, but the fees can be divided into fees related to your mortgage or the property itself. That means you’ll be paying either your mortgage lender or a third party. Many of these fees are one-time fees, but there may be recurring fees you need to pay, such as homeowners insurance and property taxes.
Application Fees
To process your loan application, your lender may charge you an application fee. The amount of this fee and how it applies to your closing costs depends on your lender. While some lenders use this fee as a deposit for other closing costs, some consider it a separate fee.
Appraisals
An appraisal is an essential part of your mortgage since it will determine how much you can borrow for your mortgage. While you get an appraisal through a third-party company, your mortgage lender will require it to determine how much your property is worth.
During the appraisal, the appraiser will check the basic safety features of your home to determine if the property is move-in ready. They will also establish your home’s value to establish your loan amount and to make sure you aren’t overpaying for your property.
Attorney Fees
In some states, you’re required to have an attorney to close on a home loan. These fees are paid to a real estate attorney to coordinate your closing and prepare paperwork for your title transfer.
Closing Fees
You will have a closing meeting to close your mortgage, and that will cost you too. This fee is paid to the escrow company or attorney who conducts your closing meeting.
Courier Fees
You pay courier fees to transport your mortgage documents, if your lender charges them.
Credit Reporting Fee
Reviewing your credit report is an essential step in getting a mortgage. So, you will have to pay a credit reporting fee to pull your credit report and look at your credit score.
Escrow Funds
Escrow funds are a reserved amount of money that your lender keeps in a special account to make payments for property taxes, mortgage insurance, and homeowners insurance. Your lender will typically require a couple of months of expenses to be put into your escrow account.
Flood Certification
If you live in a flood zone, you have to pay a flood certification fee. This fee is paid to the Federal Emergency Management Agency, which coordinates the federal response to a disaster declaration.
HOA Transfer Fees
If the property you’re purchasing is located in an HOA, the HOA transfer fee will cover the cost of moving the HOA fees from the seller to the buyer. While the seller usually covers this cost, it’s best to be prepared.
Homeowners Insurance
Homeowners insurance will protect your home if it gets damaged and is typically required to get a mortgage loan. This insurance can protect your home against fires, theft, natural disasters, and vandalism. Upon closing, your lender may require you to pay a year’s worth of homeowner’s insurance.
Lead-Based Paint Inspection
If your home was built before 1979, there may be lead paint present. Lead-based paint is considered a significant health risk to adults and children, so it’s important to know what materials you’re dealing with when purchasing a property.
Loan Origination Fee
To process your loan and get the underwriting, you will be charged a loan origination fee. You will pay this to your lender to create your loan paperwork.
Private Mortgage Insurance
When you make a downpayment that is less than 20%, your lender will require you to get private mortgage insurance. This is to protect the lender in the event you default on your loan. Your lender may ask you to pay the first month’s premium when you close, and you may be able to pay som eor all of the premium up front when you close.
Property Taxes
Property taxes are an annual fee you pay to your local government to fund public services. These taxes are an essential part of funding public schools, roads, fire departments, and other public institutions where you live.
Transfer Tax
To transfer your new home title, you’ll need to pay transfer taxes to your local government to update your home title.
How to Lower Your Closing Costs
If it sounds scary to pay closing costs on top of all the other mortgage payments, you’re not alone. It’s daunting to think about thousands of dollars in fees on top of your down payment.
But while closing costs are unavoidable, you do have options to lower their costs.
One of the most effective ways to lower your closing costs is by shopping around for a mortgage lender. Your mortgage lender determines the fees you pay and the interest rate for your loan, so shop around and ask questions about the fees they charge.
Choose a lender that has lower fees and can offer you competitive interest rate. Even a slightly smaller rate can mean big savings.
Another way to save on closing costs is by asking the seller to contribute. Some fees, such as HOA transfer fees, can be covered by the seller, depending on your loan type.
And if you're a first-time home buyer, there are several federal and state programs to provide financial assistance. Many states and even cities offer assistance programs for closing costs for eligible participants.
Close On Your Dream Home
Whether you’re thinking about buying a home or actively looking for one, it’s important to understand all the costs involved in your purchase.
With such an investment of time and money, you want a home that meets all your needs and wants.
At Hunt Homes Group, our specialty is crafting luxury spec homes for East Texans just like you. Our timeless designs and modern amenities ensure you have everything you need to feel right at home.
Our knowledgeable team can help pair you with a home that has what you’re looking for and is in your price range. With our years of experience, we know how to walk you through the process from the initial consultation to all the closing costs involved.
Ready to take the next step? View our available homes or contact us today to talk to our team.
