Being a buyer and understanding closing costs
are something that many homebuyers get confused about. Who pays what and where do the costs come from? Here’s what to remember before closing the deal. What are the costs? Closing costs can include but are not limited to the following: Title insurance, title searches, flood certification fee, recording the transaction in the city or county’s records, surveys, appraisals, underwriting the mortgage, pulling a credit report, legal fees, and processing fees. Who pays for the costs? Buyers generally pay for the majority of closing costs, as the costs usually stem from obtaining a loan. With that said, beware of any mortgage lenders stating they will cover your closing costs; while you may not have closing costs, you will have additional fees built into your mortgage.
A useful tip that some buyers I have worked with use rolling your closing costs into your mortgage. For example, a purchase price is $500,000. Your offer is $500,000 with $10,000 credited towards your closing costs (which means you are paying $490,000 and asking for a $10,000 credit for closing costs). While this is a great opportunity to combine costs under your mortgage, you also must make sure that the property appraises appropriately so that you are able to make it work. Another piece of advice: When negotiating during the real estate transaction, it will make more sense for you to negotiate a price reduction (or receiving a credit for) closing costs versus asking for a price reduction (which would only lower your monthly payment minimally).
How do you know what your closing costs will be?
While there is no magic number for what closing costs are, they generally range from 2 to 5 percent (more or less). After you apply for a mortgage, the lender, by law, must provide you with a Good Faith Estimate (GFE) that summarizes your loan and states all of the settlement charges so that you are fully aware of Useful tip:
always prepare to pay the higher range of costs that are provided on your GFE so that the only thing you are left surprised about is a bottle of champagne in your refrigerator left by your Realtor welcoming you into your new home.