Buying a home is a complex and confusing process. After all, there are many different professionals you will work with – including real estate brokers and agents, title officers, appraisers, and more – and all of these professionals have to get paid. Generally speaking, this payment comes in the form of closing costs that you, the buyer, will be responsible for come closing day. Prepare yourself and protect your finances by learning as much as you can about closing costs before you commit to a purchase. Here is what every homebuyer should know about closing costs:
What are closing costs? There are three different types of costs associated with the purchase of real property (besides the cost of the property, itself): earnest money, down payment, and closing costs. Down payment is what you must come up with out of pocket toward the cost of your home. Earnest money is the deposit you must give the real estate agent in order to take the property off the market. Closing costs are any cost outside of down payment and earnest deposit, and they include things like mortgage origination fees, lender fees, loan discount points, and the title company’s fees.
How much should closing costs be? Generally speaking, your closing costs should equal about four to six percent of the selling price of your home. If they are much more than that, then it is possible there is a mistake and you need to figure out why.
The Good Faith Estimate (GFE). Long before you go to closing (actually, when you first receive a mortgage loan quote), your lender representative will give you a Good Faith Estimate. The GFE is a form on which all of the costs associated with purchasing your property are itemized in detail. Go over your GFE with a fine-tooth comb and ask questions about any fees you don’t understand, or that look inaccurate.
Closing costs are negotiable. For the most part, you can negotiate your closing costs. This is especially true when it comes to mortgage origination fees and loan discount points. If you’re not sure, ask. It never hurts to try, when it comes to saving money.
At the closing. When you sit down at the closing table, your final closing costs should match those on your Good Faith Estimate. Therefore, you should know exactly what to expect. If there are any surprises, then you need to take it up with your lender representative and/or closing agent before you sign anything.
As a first time homebuyer, you are bound to be a little stressed during the purchase process. Ease at least some of your tensions by studying up on these facts about closing costs.
About the Author: Brandon Reauish works in real estate and specializes in helping first time home buyers. When he isn’t working he can be found reading his favorite books while sipping the oolong tea he loves from http://www.goldenmoontea.com.