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.
When 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.
In 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.