Be ready for closing costs when you buy a house

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Right now, in most places throughout the United States, housing inventory is low and demand is high, which makes it a competitive buyers’ market in the real estate industry. Many buyers know that having a substantial down payment ready can help boost an offer to the front of the pack. However, a lot of people forget to think about closing costs and out-of-pocket money they’ll need to close the deal. Various factors, such as location, state laws, list price of a home and more, can affect the amount of money you’ll need to be able to put on the table when you close on a new home.

One of the things you can do to help prepare for closing costs is to speak with an experienced buyers’ agent ahead of time. More and more agents are providing full service to prospective clients nowadays. This means that you can likely find an agent who’s willing to sit down and talk about your real estate goals before you’ve even hired him or her. One of the things a buyers’ agent can do is give you an idea of what your closing costs will be, using various list prices in your chosen location as examples.

Your closing costs will include appraisal fees

Lenders traditionally require buyers to pay home appraisal fees as part of their closing costs. If you apply for a mortgage loan, you’ll have to have the home in question appraised, in order to secure the loan. Fees vary but typically range between $300 and $600. The location of the home, the appraisal company you choose and other factors will affect price. No matter what the total fees happen to be for an appraisal, the important part to remember is that it’s coming out of your pocket at the closing table.

Title search and title insurance fees are also part of closing costs

Before someone sells a home, a title search is done to prove that the person listing the home on the market has a right to sell it. In addition to a title search, title insurance protects the buyer and the lender from problem issues that may arise with the title after closing on a home. Search fees are usually several hundred dollars. Title insurance fees typically run a few dollars per $1,000 on the price of the home or a dollar amount per $100 up to a certain amount. In either case, these are fees that are part of the buyer’s closing costs.

What about a home inspection?

You might also pay for a home inspection as part of your out-of-pocket closing costs when buying a home. However, if yours is a contingent offer, you may have requested that the seller cover these expenses, which he or she may or may not agree to do. A home inspection might cost anywhere from $300 to $400.

Other miscellaneous fees that you must pay to close on a home

The following list shows numerous other services and issues that generate closing costs, which you may be responsible for paying, if you’re the buyer:

  • Tax transfers
  • Lender fees
  • Survey fees
  • Outstanding balance
  • Prepaid property tax and homeowners’ insurance
  • Escrow fees
  • Legal fees

It’s a good idea to set aside approximately 3% to 4% of the total purchase price on a home for closing costs.

A word about VA loans

If you’re purchasing a home through a VA loan (as a present or former member of the military) the seller may be the one who is covering all closing costs. This is a negotiation factor, because a seller isn’t legally obliged to cover the expenses. There are also certain closing costs that buyers who are purchasing a home with a VA loan are not permitted to pay, such as termite inspection fees. If you’re working with the VA to buy a home, you’ll want to seek clarification about closing costs ahead of time, so you know what to expect.

Buying a home is a major investment

Purchasing a new home can be an exciting yet stressful experience, especially with regard to finances. In addition to a down payment and closing costs, there are other expenses that you’ll want to consider before making an offer on a specific home. Here’s a post from our archives that provides a list of additional costs that typically coincide with a new home purchase.


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