Purchasing a home is an exciting journey, especially if it is your first time buying! Before you go out with a real estate agent on home tours and make a formal offer on a home, it is important to understand the amount of money you will be asked to bring to the table before signing the final paperwork and being handed the keys. Below is an explanation of some of the common closing costs you will pay and how you can prepare for them ahead of time.
What are Closing Costs?
Closing costs are the fees and expenses you can expect to pay in addition to the purchase price of your home. These fees are paid during the closing process. To ensure you have budgeted for them properly, plan on paying between 2-4% of the purchase price of your home in closing fees.
Here is a quick run-down of some of the common closing costs you will likely pay when purchasing your home:
1. Home Inspection
The home inspection is one of the most important components of your home buying experience as the home inspector will provide you with a full report detailing the good, bad, and ugly findings on the inside and outside of your home. When hiring a home inspector, do some research so that you can find a reputable provider who does not cut corners. The home inspector will look for things like damaged pipes, foundation issues, rodent problems, roof rot, and other problems that could have a major impact on whether you decide to continue forward with purchasing the home.
2. Attorney Fees
Depending on your own personal preferences or the specifics of your purchase contracts, you may or may not decide to hire an attorney to assist with closing the deal. If you choose to hire an attorney, you will need to budget for their hourly rate.
3. Lender Fees
Yes, not only will you pay interest on your mortgage, but you will also pay lender fees that cover the costs of getting the home appraised, your lender putting all of your paperwork together, and associated administration fees. Some lenders will fold these costs into the mortgage, but others will require you to pay the fees upfront during escrow signing. Your lending officer can go over these fees with you in more detail before you make an offer on a home.
4. Prepaid Costs
When you go to close your home loan, you will most likely need to open an escrow account depending on the lender you work with to get the loan. Your lender may even require you to pay prepaid costs, especially if you are coming to the table with a low down payment. Prepaid costs include prepaid homeowners insurance as well as property taxes.
5. Title Fees
Title fees make up more than 50% of the total closing costs and these fees include the cost of lender title insurance, title search, and other service fees your specific lender charges.
6. Down Payment
Last but not least, most new homeowners are required to make a down payment of at least 10% upon closing of the home. The down payment requirement can be more depending on your financial history, your credit score, and the type of loan you are taking out. While 10% is usually the minimum, it is always good to shoot for more as this shows you are a serious borrower and could even bring down your monthly mortgage payments.
How Can You Prepare for Closing Costs?
Set up a meeting with your selected lender the moment you decide it is time to embark on the journey of homeownership! Your lender will give you a detailed run-down of how much money you could be qualified to borrow, based on your financial situation, and an estimate of the expenses associated with closing.
You should also start shopping around early for homeowners insurance, an escrow company, and home inspectors, so you can be sure to get the best deal once you are ready to buy. It is also a good idea to tuck away as much money as you can to prepare for the down payment and other unforeseen expenses that could creep up during the home buying process.
The D.C. Metropolitan area is a wonderful place to call home. Not only is it the epicenter of politics in America, but it is rich with historical attractions and beautiful scenery. Whether you are looking to call this area home for the first time or are ready to transition into a new home, we at First Savings Mortgage are here to help you every step of the way. Contact us today so we can get started!