If you are considering buying a home, it’s a good idea to plan ahead for the costs that are a typical part of the homebuying process. And while your down payment is probably the number one expense on your mind, don’t forget about closing costs. Here’s what you need to know.
What Are Closing Costs?
Simply put, your closing costs are the additional fees and payments you have to make at closing. They will vary based on the price of the home and how it is financed. According to Freddie Mac, this part of the homebuying process typically includes:
- Application fees
- Credit report fees
- Loan origination fees
- Appraisal fees
- Title insurance
- Homeowners insurance
- Attorney fees
Some of these are one-time expenses that are baked into your closing costs. Others, like homeowners’ insurance, are initial installment payments for ongoing responsibilities you’ll have once you take possession of the home.
How Much Are Closing Costs?
The same Freddie Mac article goes on to say:
“Closing costs vary greatly depending on your location and the price of your home. Typically, you should be prepared to pay between 2% and 5% of the home purchase price in closing fees.”
In Charleston County, we definitely trend toward the higher end of that range. With that in mind, here’s how you can get an idea of what you’ll need to budget. Let’s say you find a home you want to purchase at today’s Charleston County median price of $737,250. Based on the 2-5% Freddie Mac estimate, your closing fees could be between roughly $14,745 and $36,862.
But keep in mind, if you’re in the market for a home above or below this price range, your numbers will be higher or lower.
Tips To Reduce Your Closing Costs
If you’re wondering if there’s any way to inch that down a little bit, NerdWallet lists a few things that could help:
- Negotiate with the Seller: Some sellers are willing to cover part or all of these expenses — especially since homes are staying on the market a bit longer now. Sellers may be more motivated to compromise, and you’ll find you have a bit more negotiation power. So don’t hesitate to ask them for concessions like paying for the home inspection or giving you a credit toward closing costs.
- Shop Around for Home Insurance: Since rising home insurance is a challenge in many areas of the country right now, take the time to get a clear picture of all your options. Each insurance company offers their own policies and coverage, so get multiple quotes and see how they compare. Choosing a policy that provides reliable coverage at a competitive rate can make a difference.
- Look into Closing Cost Assistance: Just like there are programs out there to help with your down payment, options exist to get support with closing costs too. While they’ll vary by area, there are programs for various income levels, certain professions, and specific towns or neighborhoods too. If you want to learn more, the U.S. Department of Housing and Urban Development (HUD) maintains a helpful resource for finding homebuying assistance programs in every state.
Planning for the fees and payments you’ll need to cover when you’re closing on your home is important – and it doesn’t have to be a big surprise. Work with your trusted agent and lender to get a good estimate on your closing costs before you make an offer on a home; you don’t want any uncomfortable surprises when it comes time to close on your new home.
Warmly,
Lauren & Cambron | Lauren Zurilla & Associates
Adapted from Keeping Current Matters