If you’re buying a home for the first time, there are some surprises coming your way. Some of them are good. Maybe your realtor will present you with a bottle of nice Champagne and fresh flowers. Others, like the typical house closing costs, are things you don’t want to be surprised by.
Closing on your new home is an exciting moment. No need to ruin that with unexpected closing costs. What does that mean? Going into a home purchase, you may look at the home price and think that’s what you’re paying, but it’s far from accurate. When you’re deep into lending process and these typical house closing costs pop up out of the blue, you might second-guess your decision. And maybe whether or not you should have ordered take-out last night.
Knowing what you’re getting into from the start gives you a leg up to run through everything as smoothly as possible. The more clarity you have, the less anything can take you off guard. You’ll know what you need and precisely what you’ll be putting towards your home every step of the way. The closing costs are some of the sneakiest of these expenses, and they can add up fast. Here is what you should be looking for.
The top three typical house closing costs to know about
Be prepared from the start. There are plenty more than these three typical house closing costs to be aware of, but let’s digest a little bit at a time. For our purposes here, we’re breaking these costs down into three main categories where you can expect closing costs to arise.
- Lenders Fees: Lenders fees could include points on the loan and lender origination fees. Points are a percentage of the loan that you pay upfront. One point is equivalent to one percent of the total loan. So, for example, three points paid for a $200,000 loan would be $6,000. Paying points on your loan should bring down the interest rate on your loan, so that’s a positive. Lender origination fees operate as a fee to the lender for the processing of your mortgage. Typically, they will work out to a half a percent or one percent of the total loan.
- Third-Party Fees: Third-party fees can stack up quickly. Depending on where you are purchasing your home, some different things could come into play here. Fees could include things like title insurance, appraisal fees, tax service fees, credit report fees, and more. Everything together can easily exceed $4,000 or more depending on the home you’re buying, and the location.
- Prepayments: You will be required to prepay some of the interest that would accumulate on your loan. This covers interest from the closing date to the last day of the month, so the total of this prepayment can vary depending on what time of the month you end up closing. In many cases, you’ll need to prepay the entire first year of homeowner’s insurance, too, even if you plan to pay monthly premiums in the future.
Also, depending on the time of your closing, a portion of the taxes that will be due on the property may need to be prepaid as well.
There are many subcategories within these typical house closing costs. But these overarching categories provide a checkpoint to know what you can expect to see in your home buying process. Don’t be surprised if the total of all your closing costs exceeds $10,000. Educating yourself on the fees that can arise for these categories within your area is a perfect start to making sure nothing sneaks up on you.
Oh, and before you get dismayed by the thousands in closing costs, don’t forget that, just like every other part of the process, you can negotiate. Sometimes you can get the seller to pay part or all of the costs, or you can wrap some of the expenses into your loan.
Remember, once you get to that point of the home-buying process, there’s almost always a way to work things out.
What are some typical house closing costs that you were surprised to learn about?