AGENTS: Did you know you can share a personalized version of this post? Learn more!
, ,

Have You Saved Enough for Closing Costs?

Have You Saved Enough for Closing Costs?

There are many potential homebuyers, and even sellers, who believe that they need at least a 20% down payment in order to buy a home or move on to their next home. Time after time, we have dispelled this myth by showing that many loan programs allow you to put down as little as 3% (or 0% with a VA loan).

If you have saved up your down payment and are ready to start your home search, one other piece of the puzzle is to make sure that you have saved enough for your closing costs.

Freddie Mac defines closing costs as:

“Closing costs, also called settlement fees, will need to be paid when you obtain a mortgage. These are fees charged by people representing your purchase, including your lender, real estate agent, and other third parties involved in the transaction. Closing costs are typically between 2 and 5% of your purchase price.”

We’ve recently heard from many first-time homebuyers that they wished that someone had let them know that closing costs could be so high. If you think about it, with a low down payment program, your closing costs could equal the amount that you saved for your down payment.

Here is a list of just some of the fees/costs that may be included in your closing costs, depending on where the home you wish to purchase is located:

  • Government recording costs
  • Appraisal fees
  • Credit report fees
  • Lender origination fees
  • Title services (insurance, search fees)
  • Tax service fees
  • Survey fees
  • Attorney fees
  • Underwriting fees

Is there any way to avoid paying closing costs?

Work with your lender and real estate agent to see if there are any ways to decrease or defer your closing costs. There are no-closing mortgages available, but they end up costing you more in the end with a higher interest rate, or by wrapping the closing costs into the total cost of the mortgage (meaning you’ll end up paying interest on your closing costs).

Home buyers can also negotiate with the seller over who pays these fees. Sometimes the seller will agree to assume the buyer’s closing fees to get the deal finalized, which is known in the industry as ‘seller’s concession.’

Bottom Line

Speak with your lender and agent early and often to determine how much you’ll be responsible for at closing. Finding out you’ll need to come up with thousands of dollars right before closing is not a surprise anyone is ever looking forward to.


Members: Sign in now to set up your Personalized Posts & start sharing today!

Not a Member Yet? Click Here to learn more about KCM’s newest feature, Personalized Posts.

Have You Set Up Personalized Posts Yet? | Keeping Current Matters

We at The KCM Crew believe every family should feel confident when buying & selling a home. KCM helps real estate professionals reach these families & enables the agent to simply & effectively explain a complex housing market. Take a 14-Day Free Trial of our monthly membership to see how we can help you!

1 reply
  1. Keith Gumbinger
    Keith Gumbinger says:

    Correctly allocating your assets among a combination of down payment, closing costs and required or desired reserves is a key to getting the best mortgage package for your budget.

    As noted, borrowers can pay costs up-front, possibly incorporate them into the loan amount or even trade them off for a slightly higher interest rate. For most borrowers, the choice of which method is best comes at the intersection of their choice and the time they expect to remain in the home (or mortgage).

    There can be times when paying closing costs out of pocket brings the best savings, and that’s certainly true over the long haul. However, there are times when a slightly higher interest rate works out better, especially if funds originally earmarked for closing costs can be used to increase the down payment, lowering the amount borrowed (and reducing or eliminating costs for private mortgage insurance). The only way to know which of these will work out is to make some guesstimates of potential ownership time periods and compare total costs over that horizon.

    Reply

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *