According to a recent survey conducted by ClosingCorp, over half of all homebuyers are surprised by the closing costs required to obtain their mortgage.
After surveying 1,000 first-time and repeat homebuyers, the results revealed that 17% of homebuyers were surprised that closing costs were required at all, while another 35% were stunned by how much higher the fees were than expected.
“Homebuyers reported being most surprised by mortgage insurance, followed by bank fees and points, taxes, title insurance and appraisal fees.”
Bankrate.com recently gathered closing cost data from lenders in every state and Washington, D.C. to be able to share the average costs in each state. The map below was created using the closing costs on a $200,000 mortgage with a 20% down payment.
Keep in mind that if you are in the market for a home above this price range. your costs could be significantly more. According to Freddie Mac,
“Closing costs are typically between 2 and 5% of your purchase price.”
Speak with your lender and agent early and often to determine how much you’ll be responsible for at closing. Finding out that you’ll need to come up with thousands of dollars right before closing is not a surprise anyone is ever looking forward to.
Posted by The KCM Crew
There are many potential homebuyers, and even sellers, who believe that you 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 there are many loan programs that 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 in order to get the deal finalized.
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.
Posted by The KCM Crew
There’s only one way to be totally prepared for all the costs of buying a home.
You’re excited because you just found the perfect home. The neighborhood is great, the house is charming, and the price is right.
But if you’re a first-time home buyer, you might find out that the price is pretty far from perfect.
If you’re shopping for your first home, additional — and often unexpected — home-buying costs should be top of mind. These costs catch many home buyers unaware, and can quickly leave you underwater on your new home.
The best way to deal with this is by preparing yourself and making sure you have enough cash tucked away for a rainy day.
Costs coming out of the woodwork
For almost every person who buys a home, the spending doesn’t stop with the down payment. Homeowners insurance and closing costs, like appraisal and lender fees, are typically easy to plan for because they are lumped into the home-buying process, but most costs beyond those vary.
The previous owners of your home are the biggest factor that goes into your move-in costs. If they take their refrigerator when they move out, you’ll have to buy one to replace it. The same goes for any large appliance.
And while these may seem like a small purchase compared to buying a home, a few thousand-dollar appliances quickly add up — especially if you just spent most of your cash on a down payment.
Similarly, unless you negotiate it as part of your home purchase agreement, you’ll also be on the hook for any immediate improvements the home needs.
Unfortunately, these costs are the least hidden you may encounter.
When purchasing a home, it’s strongly recommended that you hire a home inspector(this costs money, too!) to ensure the home isn’t going to collapse the next time it rains. Inspectors look for bad electrical wiring, weak foundations, wood rot, and countless other problems.
Worse still, these problems are rarely covered by home insurance. If an inspector discovers a serious problem, you’ll then have to decide if you still want to purchase the home. Either way, you’ll be out the cost of hiring the inspector.
Another cost is your own comfort. It’s easy to not think fully about what you are expecting from your new home until after you move in.
Are you used to having cable television? If so, is your new home wired for cable? It’s much harder to watch a technician crawling around punching holes in your walls when you own those walls.
Because you’re likely moving from the world of renting to the world of homeownership, you’ll probably be faced with much higher utility bills. Further, you could find yourself paying for utilities once covered by a landlord, like water and garbage pickup.
The only way to face the unexpected and unknowns of home buying is with research and planning. This starts with budgeting before house hunting, and should continue throughout your search.
Look at homes in your budget that need improvements, then research how much those improvements could cost.
Nothing is worse than buying a home thinking you can fix the yard for a few hundred dollars and then realizing it will cost thousands.
There is really no upper limit to how prepared you can be. Say you find a nice home that’s priced lower than others in the area because of its age. You may save money on the list price, but with an older house you could be slapped with a much higher home insurance payment, effectively making the house more expensive in the long run.
This is where preparation comes in. Research home insurance and property prices in the areas you’re house-hunting to make more educated decisions before you ever make that first offer.
Clearly define how much you intend to put toward your down payment, then look at how much cash that leaves you with for improvements and even minor costs, like changing the locks. That way when you find a house at the high end of your range, you’ll know to walk away if it requires you to buy a new washer and dryer or upgrade the HVAC system.
Establish a rough estimate for as many costs as you can think of, and be extremely critical of homes at the top of your budget, or you could easily end up being house poor.
Know your budget and plan ahead. Buying a home is a lot less scary when you know what you’re getting into.
Posted by Jonathan Deesing on Zillow
Shopping for the best mortgage involves more than just checking interest rates and loan terms. Many borrowers are surprised by the many additional costs involved in closing the loan.
Almost all closing costs relate to fees that the mortgage lender is charged by a third-party company and then passes on to the borrower. Some of the fees are additional costs the lender levies. Because these fees are all settled at the closing table, they are commonly referred to as closing costs.
Breaking down closing costs
Closing costs usually account for 2 to 5 percent of a home’s sale price, although they may be more or less in some cases. These costs typically cover:
- Obtaining a credit report
- Processing paperwork for the loan (loan origination fees)
- Legal fees
- Home inspections
- Title insurance
- Title searches
- An escrow deposit
- Recording the transaction in the city or county’s records
- Underwriting the mortgage (evaluating the borrower and the property)
In addition to these fees, home buyers may elect to increase their closing costs through discount points, which lower the mortgage’s interest rate and saves the borrower money over the life of the loan.
Who pays closing costs?
In most cases, the buyer pays the bulk of the closing costs. In some cases, however, other parties may absorb a portion or all of these costs. For instance, if a home is purchased using a Veterans Affairs (VA) loan, then the seller will pay some of the closing costs, and the buyer will pay the remaining costs.
Some mortgage lenders advertise mortgages without closing costs. These may or may not be a good choice, depending on the specifics of the mortgage. Home buyers, however, should realize that any bank offering mortgages without closing costs will likely build those fees into the structure of the mortgage. Buyers (or sellers) will probably pay the fees associated with purchasing a house, one way or another.
Saving for closing costs
Home buyers should be aware of the closing costs they will be expected to pay because these fees can significantly increase the amount of money needed at closing. The good news is that lenders must provide a Good Faith Estimate (GFE) of these costs shortly after the borrower applies for the loan. The law now states that the final settlement of the loan must not deviate from this estimate by more than 105 percent — and for some loan products not at all.
But, borrowers can still be surprised by the GFE if they are not already planning to pay at least some closing costs.
Consider the following example: A home is sold for $100,000, and the buyer will make an initial down payment of $10,000 (10 percent). But that’s not all the money the buyer will need to bring to the closing table. The closing costs can be expected to be around 5 percent, or $5,000. The buyer actually needs to have $15,000, not $10,000 at closing. The fees increase how much the home buyer needs at closing by 50 percent, in this case.
This article was originally published by Rick Grant on Zillow Blog. See the original article here.