Buying a house is very exciting, but has anyone ever showed you the costs associated with your home purchase? Purchasing your property without knowing how much you’ll pay in closing costs is like painting your house without knowing the color: if it’s not what you expected, you can easily be disappointed. To avoid stress, I’m going to walk you through what you can expect to pay as a buyer in closing costs. By knowing the numbers ahead of time, you can plan and budget to make the wisest decision possible.
When you know what you’ll pay in closing costs, you’ll also be in a position to take advantage of good deals that come your way without hesitation. Since these costs come as an addition to your down payment, you’ll need an estimate of the total amount of money needed to complete the sale. I’ve heard horror stories of buyers who’ve arrived on their closing day and didn’t know how much they needed to pay in closing costs. As you can imagine, these types of surprises don’t go over so well with uninformed buyers. When you anticipate these costs correctly, you’ll be prepared for what’s needed to complete the purchase of your home.
Below are 8 types of closing costs you can expect to when buying a house.
- Money for your down payment. A down payment is a good faith deposit that you’ll need to pay before you close. While the money will be held in escrow up until closing, it will be leaving your bank account right away. Planning for this is essential in the home buying process.
- Inspection fees. An inspection of the house you’ve agreed to purchase is extremely important. It allows you to make sure everything is in working order, identifying any hidden issues that could cause serious problems down the road. Most buyers will need a basic home inspection, termite inspection, and sometimes a septic inspection depending on your new home’s location. If there are any items revealed during the inspection that need attention, you can either ask the seller to give you a credit for necessary repairs or request they be repaired at their expense. The inspector’s fee will vary depending on who you hire and the square footage of the home.
- Lender fees. Unless you’re paying in cash, most buyers will be taking out a mortgage to pay for their home. The mortgage broker or lender you use will have closing costs related to a home appraisal, loan origination fee, mortgage insurance, and additional closing costs. The appraisal is the only lender fee you’ll typically pay upfront, which will be paid around the time of your inspections. You should receive a Good Faith Estimate (GFE) that will estimate and outline your closing costs, and you’ll want to make sure you go over this with your lender. If they don’t give you this breakdown, you’ll probably want to find a better lender.
- Title insurance. Your closing will be finalized at a title company, and their fees will be part of your closing costs regardless of how you’re paying for your home. The title company is the place where the title/deed are transferred from one owner to the other, where all your money is wired in and where the transaction is closed. Here in New Jersey, title insurance is regulated by the state. No matter which title company you use, you’ll pay the same amount.
- Miscellaneous settlement fees and title costs. A few other costs include a settlement fee (usually split equally between the buyer and seller), recording fee, UPS fees for overnighting documents, and a settlement for homeowner’s insurance. Property taxes will also need to be paid ahead of time.
- Your mortgage company is going to ask you to pay a certain amount of property taxes and homeowner’s insurance in escrow. These costs will typically need to be paid 3-4 months in advance.
- Condo fees. If you’re buying a condo, they may come with additional closing costs. These may include a condo questionnaire fee, capital contribution or buy-in fee, and upfront condo fees to be paid at closing.
- Something that could increase your closing costs is prorations. These are things that the seller has already paid for that will need to be reimbursed by you at closing. For example, if the seller has already paid property taxes in advance, you’ll need to pay your share from the day of settlement through the date they already paid.
Knowing all of these closing costs upfront will allow you to better prepare for the total amount of money you’ll need to close on your new home. If you’d like a better idea of what your closing costs will be, feel free to fill out our contact form so we can give you a full estimate of what you can expect to pay.