Buying a home is no simple process, as any homeowner can tell you. There’s the search, the negotiations, the bidding wars, and then when the deal is sealed there are the closing costs.
You’d think that with all the money you’re spending on a home that a small percentage wouldn’t seem like much but closing costs can range from 2% to 5% of the sale price depending on your home, your contract and your location. If you’re buying a $500,000 home, that’s anywhere from $10,000 to $25,000!
In other words, your down payment isn’t the only lump of cash you’re going to need to bring to the table when you’re purchasing a new home.
What are closing costs
Closing costs are the fees you pay to finalize your mortgage. They go to your lender in exchange for processing and servicing your loan, as well as third parties.
Here’s a list of some of the fees you might see listed in your closing costs. And note, that this is a long list, but it’s not even complete!
- Loan application fee
- Prepaid interest
- Origination fee or loan fee
- Broker fee
- Underwriting fee
- Mortgage insurance
- Title search
- Lender’s title insurance
- Borrower’s title insurance
- Appraisal fee
- Credit check fee
- Settlement or escrow agent fee
- Attorney fee (in states where borrowers need a real estate attorney)
- Deed recording fee
- Property transfer tax
- Courier fee
- Wire transfer fee
- Condo certification fee
- Homeowners association certification fee
- Loan document preparation fees
- Prepaid homeowners insurance
- Escrow reserves
- Prepaid property taxes
- Prepaid flood insurance
- Notary fees
Some of these fees can be bundled into your loan so you won’t necessarily be paying such a large sum of money at once. But you need to be prepared to cover some of these costs when you close on your home. Talk to your lender well in advance to know what you should estimate
Can you lower closing costs?
While there will always be closing costs no matter your situation, you can shop your mortgage around. You can talk to mortgage brokers, banks and other lenders to price out their closing costs and there is a chance that you could save thousands of dollars.
You could also negotiate closing costs with the seller in the purchase of your home. But, depending on the market, this might be a tough negotiation. In Florida, the market is so hot and inventory is so low currently that buyers are waving inspections, offering cash and getting into bidding wars. This type of market isn’t very ripe for closing costs negotiations. When the market is a little cooler and it’s more of a buyer’s market, that’s when you might be able to negotiate closing costs. If you want to negotiate for the seller to cover closing costs, you’ll most likely have to be more flexible in another arena.
When it comes to purchasing a home, you need all the help you can get. Many people don’t realize how much a great real estate lawyer can help them with the final negotiations and closing procedure. The minimal fees you pay a lawyer could save you thousands in the long run.
If you are ready to purchase a home or in the midst of difficult negotiations, contact us to see how we can help you navigate the sale, contract, condo association, HOA, closing costs and so much more.