What You Need to Know About Closing Costs

When you’re buying a house, you may hear the term “closing costs”. The reason that term is important to you, as the buyer, is that you will most likely be responsible for paying those closing costs. Closing costs are estimated to be anywhere from two percent to eight percent of the value of the property you’re buying. Your home mortgage lender will provide you with an estimate of what your closing costs will be, but those costs are subject to change up until three days prior to closing, at which time your lender will provide you a list of actual closing costs. Your closing costs are not covered in your home mortgage loan, nor do they come out of your down payment. When you shop for a property, keep in mind that you will likely be asked to pay twenty percent down as a down payment against your home mortgage loan, and then an additional two-eight percent for the closing costs. Here’s what closing costs may entail.

calculator and toy house on papersWhen you make an offer on a house, before the deal can be finalized, the home must undergo an appraisal. The appraisal is typically ordered by the bank to validate the value of the property to make sure it’s worth the amount you’re borrowing. In many cases, your real estate agent will recommend an appraiser, and the appraiser’s fee becomes part of your closing costs. If the appraisal comes back showing that the house is not valued for what is being asked, you have the ability at this stage to negotiate the price, or nullify your offer.

In addition to the appraisal, the house you’re buying must undergo an inspection. The inspection is to your advantage because it can reveal potentially hidden issues with the property, such as damaged roofing, malfunctioning heating and cooling systems, plumbing issues, electrical problems, or other items of disarray that could eventually end up costing you money. A lot of money! Ideally, the inspection will come up clean. However, if problems are discovered, you have three options. Your first option is to require the seller to make full repairs prior to your closing date. Your second option is to negotiate the price of the property so that you can pay for the repairs after you become the owner. Your third option is to withdraw your offer. Either way that home inspector needs paid for his services, and that is added into your closing costs.

Before the home can be legally sold, a title search must be performed. A title search verifies that there are no liens or tax levies against the property preventing it from being able to be sold. There are clerical fees involved with a title search, which are added to your closing costs.

The lending agent, who typically performs the credit checks prior to accepting your loan application, and who also provides the title search and other clerical processes, also gets paid, added to your closing costs.

couple smiling looking at house plansIn some cases, attorneys and other clerical services are required during the transaction. If so, there fees are also included in the cost you’ll pay on closing day.

Usually, an escrow agent is involved in the real estate transaction as well. An escrow agent is a third party professional who handles the filing of the paperwork and the dispensing of funds on closing day. The escrow agent makes sure all documents from both parties are signed, that the existing mortgage is paid in full, and that all professionals involved, including the real estate agents, are paid before the seller receives any proceeds from the sale of the property. So your real estate agent’s commission is also covered under the umbrella of closing costs.

If you’re not prepared for them, closing costs can catch you off guard. It is possible, in some cases, to negotiate that closing costs be paid by the seller, but more often than not, it’s the buyer’s responsibility. So when you go house shopping and you’re assessing your budget, know that you’ll need cash up front for your down payment, a good-faith deposit with your offer, and the closing costs at the end of the transaction.

Once all the closing costs are paid, the title is transferred to you, along with the keys to your new house. Call Real Property Solutions at 504-237-2942, and let us be a light for you when it comes to the home buying process.

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6 Steps to Buying a House

Buying a house is one of the biggest investments you can make in a lifetime, and the financial obligations are intense. Buyer’s remorse is a sad but true true reaction when someone realizes a little too late that they’ve bought the wrong house. Here are six simple steps to buying a home that will help you go in informed, educated, and empowered for home ownership.

Couple dreaming about buying house1. Prepare your credit report and your savings account. Gone are the days when unqualified buyers can get a loan for a home. Now, your credit must be crystal clear and you have to have some cash on hand to back your commitment. Lenders are going to evaluate (quite critically) your credit score and employment history, so don’t change jobs or make any major purchases in the time leading up to your home buying experience. Know that if you are approved, you’re still going to have to make a good-faith deposit with your offer to the seller, an average of twenty percent of the home’s value as a down payment, and closing costs, which can be estimated at about 2-8 percent of the value of the property you purchase. There are some programs available that can lower or eliminate your down-payment, but those “savings” show up in your monthly mortgage payment and the duration of your loan.

2. Get pre-approved. It’s a horrible feeling to fall in love with a property, and then find out you’re not qualified to make the purchase. Or, you lose out on your offer because a competing offer did have pre-approval. Pre-approval accomplishes much more than the comfort of knowing you’re qualified to buy. Pre-approval of your home mortgage loan lets you know exactly what your home-buying budget is. Watch for interest rates, don’t be afraid to shop lenders for the best deal, and know that you are not obligated to accept the full amount of the loan for which you’re approved. Pre-approval also sends a statement to your real estate agent, and to sellers.

How Much Home Can You Afford?

3. Once you have your credit prepared, savings on hand, and pre-approval for your loan, it’s time to find a professional real estate agent you can trust. Interview agents until you find one with whom you can comfortably communicate, who is an expert in the types of property you’d like to buy, and who has extensive knowledge about the neighborhoods in which you’d like to live. A good starting point, if you don’t already have an agent, is to ask friends, family members, and associates for referrals. It can be comforting to know that someone with whom you’re close had a good experience with the real estate agent they’re recommending. Have your wish list and deal-breaker items ready, but be realistic and be prepared to compromise. It is common for a first-time buyer’s wish list to surpass the realistic budget.

couple packing boxes4. Enjoy the fun part, shopping, but beware of well-staged houses. Staging means the seller went to extensive lengths to make the house attractive, and sometimes “pretty” can be deceiving. When you find a house you think you might make an offer on, turn on every faucet, flush every toilet; look under every sink to make sure the area is dry and free of mold. Flip the light switches. You want to make sure there are no plumbing or electrical problems with the property. You should also look over the structure. Check out the ceilings, look at the floors, in the nooks and crannies. Look for cracks, peeling paint, splitting wood, or other indicators that the property may be hiding major problems. And when you’re ready, make an offer with your real estate agent’s guidance.

5. When your offer is accepted, the house you’re buying will undergo an appraisal to make sure it’s worth what you’re borrowing, and an inspection to make sure the house is in good condition.

6. When the appraisal and inspection are finished, you’ll enter the closing process. This is where the title is transferred, the professionals involved in the transaction receive payment (such as appraiser, inspector, real estate agents, etc), and the keys are handed over from the seller to you, the new homeowner.

Congratulations on your decision to buy a home. Give Real Property Solutions a call today at 504-237-2942 to discuss how we can light the way!

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