Often, when buyers prepare to purchase a home, they often begin doing so by researching current market conditions like interest rates, housing trends, and down payment requirements. They also must figure out the amount a mortgage company will lend them before even starting to look at houses, and before this step, they have to have been saving the money to pay for the expenses associated with purchasing. However, sometimes potential buyers don’t realize the full extent of these expenses. For instance, many people forget about closing costs.
What these costs are:
Simply put, the closing costs are fees that the mortgage company charges. They generally are specific costs incurred during a buyer’s loan processing and acceptance, and they can include: fees for pulling your credit, fees for processing your paperwork, any incurred legal fees, and home inspection costs. Costs may also include land surveying, title searching and insurance, and escrow deposits.
Generally, closing costs are paid by the buyer. These days, however, it’s not uncommon for different arrangements to be made in this regard. For instance, during negotiations it can be arranged for the seller to pay all or part of these costs in lieu of a lower asking price. Also, there are still some mortgage companies that add the closing costs to the amount of the loan (but the buyer still winds up paying).
Preparing for the expense:
Many mortgage companies can give you a rough estimate of how much they will finance, which should help buyers figure out just how much they will need to save for these costs and the down payment. When planning to save for the costs due at closing, usually it’s a good idea to count on saving about 2-5% of the mortgage. Additionally, after having applied for the loan, even if it’s a pre-approval, mortgage companies must provide the buyer with an estimated cost total.
Closing costs don’t have to be an unexpected shock. If a buyer plans ahead, he or she should be able to have what’s needed to be ready to go. Tip: For agreements that include costs paid particularly or fully by the seller, it would be a good idea to apply the amount you saved toward the down payment to help lower your monthly payments a bit.