When you close on your home, you will be paying around 2 to 6 percent of the purchase price in closing costs, or fees paid to third parties for their services. Lenders are required by law to provide you with an estimate of how much these closing costs will cost you so you know what to expect.
Know What Each Closing Cost Is & Why You’re Paying It
- Origination fees: An upfront fee paid to a lender for processing a new loan application.
- Home appraisal: Appraising the home is required and helps ensure that you aren’t paying more for a property than what it is actually worth.
- Home inspection: Inspecting the home is an important step to verify the condition of the property and fix any issues that may be present.
- Credit report: When you apply for a home loan, your lender will check your credit report, which will help lenders determine how much you can afford.
- Title search: The process of researching a property to determine its history and if it has a good, marketable title.
- Homeowner’s insurance: Protects your home and possessions in the home from damages like natural disasters and theft.
- Title insurance: Coverage insurance that covers the loss on an interest in a property due to legal defects
- Down payment: The amount you put down on the home when you first purchase it.
There are many more closing costs associated with closing on a home based on:
Carefully Review All Fees
Make sure that you carefully review all fees carefully for junk fees so you are not paying more than you are required to. You can avoid closing costs by opting for what is known as a no-closing cost mortgage but you will pay more in the long run, as those costs are integrated into the total mortgage. You may also be able to negotiate for the seller to pay for the closing costs.
As always, before purchasing a home consult your lender and financial advisor to help you understand the process and set a budget that is right for you.