Many people who have never bought a home go into the home buying process knowing little about closing costs. Without a good grasp of what closing costs are and how much they cost, it's hard to prepare to buy a home. Closing costs are a big expense that many home buyers must budget for specifically. If you're thinking about buying a home in the coming year or two, here's what you need to know.
What Are Closing Costs
During the purchase of a home, home buyers interact with a variety of organizations and businesses, including government agencies, lawyers, real estate professionals, appraisers and insurance companies. Each entity charges a certain fee for its service. Most of these fees come due when the home is officially purchased. These fees are lumped together into a single payment called closing costs.
Budgeting for Closing Costs
Closing costs can cost as much as 4% of the purchase price of the home. Fees vary from one community to another and from one professional to another. Home buyers have no ability to know upon making an offer how much they might end up spending on closing costs.
The best way for a home buyer to prepare for paying closing costs is to determine how much they're willing to spend on a house, calculate 4% of that cost, and set that amount aside for the duration of the buying process.
Closing costs are not the only costs incurred when buying a home. Obviously, the buyer must pay for the house itself. Even a buyer who plans to take out a loan must put down a down payment, which is a minimum of 5% to 20%, depending on the purchase price of the home. In addition, many home buyers incur moving expenses when they relocate from one location to another. Meeting with moving services and getting quotes makes it easier for home buyers to decide how much money they should set aside for moving.
What Fees are Included in Closing Costs?
The different entities that home buyers encounter during the home buying process varies from one home purchase to the next. Some of the common fees associated with closing costs include:
- Lawyer fees. Home buyers usually pay a lawyer to help them throughout the home purchasing transaction; these fees are usually at least $500.
- Land transfer tax. The land transfer tax is often a percentage of the home, but the amount that home buyers pay varies from one community to the next.
- Title insurance. Title insurance protects home buyers in the event that there is a dispute over the title of the home.
People who want to save money on their closing costs can do so by shopping around for different professionals when the time comes to buy a home, and by limiting the amount of money that they pay to buy a home. There's no way to escape paying closing costs altogether, unless the home buyer is able to negotiate payment of closing costs by the seller.
Sandstone new home buyers who have concerns about paying their closing costs can talk to their real estate professional for guidance. If you're a home buyer who is starting the process of purchasing a home, talk to your real estate agent to find out more about closing costs and how they will impact your home purchase.