How Much Are Closing Costs For Buyers
A super important question to know and understand – how much are closing costs for buyers?! Many first time home buyers start the process thinking they only need a down payment. You need to be aware of the many other fees involved so that you can be prepared!
Other than your down payment – the rest of the fees are what we consider closing costs. Even within closing costs you have two different type of categories:
FEES: Which is money for services, like your lender, title, inspections, etc.
PRE-PAIDS: Money that is essentially set aside in an escrow account for future payments of your property taxes and insurance. This will also include insurance premiums that you will have to pay upfront.
There is no specific number or calculation when determining how much closing costs are for buyers. The amount of homeowners insurance will vary from house to house as does taxes.
So when you hear the term ‘closing costs’, these are the cost we are talking about.
- Down payment – There are a few programs out there that help with down payment assistance. Talk to your lender and/or real estate agent about this option. Otherwise you are looking at about a 3.5%-5% minimum down payment. So if you buying a $100,000 house you will need $3,000 – $5,000 for the down payment, depending on the type of loan you get.
- Earnest Money – Earnest money is money you put down on a house when you make an offer. It’s like your ‘good faith’ money. This money is held by a title company and is used toward your final closing costs/ down payment. This is NOT an expense, but rather this goes towards your down payment. If you back out of a contract, you can get this money refunded. Ask your agent for details. Usually your earnest money is about 1% of the purchase price.
- Inspection Fees– When buying a house you will hire a home inspector to go through the house and do an inspection to help you determine the overall condition of the property. There are several types of inspections that you can do, but the most common are the building (general) inspection, sewer inspection, radon and termite. Plan on about $700- $1,000 for inspections, depending on which ones you have done. Inspection fees are usually paid at the time of inspections.
- Title Fees – You will pay a title company to do a title search to make sure the house you are buying has a clear title and that there are no liens on the property. The title fees are usually around $1300+ depending on the house you buy. You will pay this at closing.
- Survey Fee – If you have a survey done of the property and depending on what kind of survey you have done this fee can be about $150-$400. The survey is optional, but talk to your agent about this option.
- Lender Fees – These vary greatly depending on who you use. Lender fees can vary from $800 – $1500 or more. You don’t have to pay these fees until closing.
- Appraisal Fee – when you buy a house you will have an appraisal done to ensure that the house will appraise for what you are paying. The lender requires this to ensure the house is worth what you are paying for the house. The appraisal usually runs about $400. This fee is paid at closing.
- Agent Fees – A lot of agents have fees, anywhere from $250 – $1200, or more. Make sure you talk to your agent about what they charge. This fee is paid at closing, if the agent you use has this fee.
- Prepaids – Your mortgage company will require you to have a minimum amount of money in an escrow account. The escrow account is the account that your mortgage company uses to hold money that will pay your property taxes and insurance premiums (like homeowners insurance, mortgage insurance and/ or flood insurance) when they are due. You are required to have a minimum amount in this account at all times. So at closing you will be required to deposit money into this account. (See my blog post about mortgage payments and escrow accounts.) You will also have to pre-pay the first year of your homeowners insurance premium and your mortgage insurance, if applicable.
With all this said, you DON’T necessarily have to have all this money. When you make an offer on a house, you can request that the sellers pay some or most of these fees. This is a great strategy for a first time home buyer, this way you don’t have to come up with as much money! This strategy will also allow you to keep more of your money so that you can buy items for your new home!
Be sure to talk to agent more specifically about any questions you have.
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