Closing Cost Basics for Buyers
- Posted Oct 21, 2022
As a buyer, you are responsible for certain costs associated with the purchase of your home. Everyone knows you must pay the purchase price, usually in conjunction with a mortgage. In addition to this amount of money, you will also need to pay closing costs. These are fees charged by the lender, title company, and other parties involved in the transaction. They can add up quickly, so it is important to be prepared.
Here are some basics on closing costs for buyers that everyone should know to prevent expensive surprises.
What Closing Costs Exist?
While sellers also have closing costs to deal with, buyers pay most of them in addition to the price of the property itself. These change depending on where you buy the house, what type of mortgage you get, if you avail yourself of different services when investigating the property, whether you look at a single-family home or condo, and more.
Some of the most common extra costs associated with buying a house include:
Application or loan origination fees from the bank or other lender who manages your mortgage are due either before you get a mortgage or when the final paperwork goes through. A fee to run your credit report might also exist.
Some closing costs also have to do with checking out the residential property for sale to make sure it is ready for you to purchase and move in. These can include an appraisal fee to ensure its valuation is accurate, home inspection fees, charges for title search to make sure there are no liens against the property, and similar things.
You are also responsible for taxes on the money you borrowed, private mortgage insurance, mortgage points paid to the lender directly, and any attorney’s fees associated with the process. The mortgage points are equal to percentages off the total loan amount that reduces your interest rate and therefore ultimately how much you pay for the property.
Different properties have other closing costs associated with them. For example, if you have an FHA loan, you are required to get specific mortgage insurance. If the home is in a flood zone, there is a small additional fee for flood certification to the Federal Emergency Management Agency. If the property is in a homeowners’ association, you may also have costs related to that. Also, many mortgages require an active homeowner’s insurance policy in place at the time of closing.
The best way to know about your specific closing costs and financial responsibilities is to discuss them with your local Realtor member of the NJMLS. They will know the ins and outs of your specific mortgage type, property requirements, and more.
How Much Should You Expect to Pay?
The total amount of closing costs you pay depends on many factors mentioned above. They are usually around 3-6% of the total purchase price minus the down payment. Specific payment requirements and charges differ based on a wide variety of factors. It is always best to speak with your real estate agent to learn what you are responsible for when it comes to buying a specific property.
How Can You Pay Closing Costs?
In most situations, home buyers have to pay closing costs directly from their own financial accounts. They cannot be part of the mortgage or any other loan. There are some instances in which sellers waive some of the closing costs or have other discount or reduction programs in place. However, it makes sense for you to get your financial ducks in a row first so that you have the money available to pay all necessary charges by the closing date.