Buying a new home is a super-exciting and super-busy time. There are many details and decisions involved in this purchase — and, of course, loads of expenses.
You’ve likely prepared for most of these expenses. Maybe you’ve been saving up for your down payment for many years and have set aside a few thousand dollars to help cover moving costs and furniture for your new home. While these are important, many people forget about budgeting for closing costs when saving up for a new home.
Closing costs include all fees and charges incurred for officially transferring a property from one owner to another. The process is complicated and requires input from many professionals who all need to get paid. Your closing costs help cover the salary of these workers.
Given all this, you may be wondering about your closing costs. What kind of closing costs can you expect on your home loan? Is there any way to lower these costs? What is a no-closing-costs mortgage?
So many questions — and we’ve got answers! Here’s all you need to know about closing costs.
How high will my closing costs be?
Closing costs are calculated as a percentage of the home’s purchase price. This means the more expensive your home, the higher the closing costs. Since they are typically 2-5 percent of the home’s price, if you’re purchasing a $130,000 home, your closing costs can be anywhere from $2,600 to $6,500. The final amount depends on local laws and taxes, the service fees of the professionals used and various factors involving your home and property.
Your closing costs should not come as a surprise to you on closing day. By law, your lender is required to provide you with a “good faith estimate,” or a detailed list of your anticipated closing costs, within three days of your mortgage application.
What kind of charges can I expect as part of my closing costs?
Here are some of the fees that may be included in your closing costs:
Should I choose the “no-closing-costs” option?
While a no-closing-costs mortgage sounds tempting, it’s important to understand what it really means before going with this kind of loan.
First, there’s no such thing as a mortgage without closing costs. You won’t see these costs on a no-closing-costs loan and you won’t need to pay them upfront, but they do exist.
Second, a no-closing-cost mortgage generally means the closing costs are rolled into the mortgage, essentially raising the price of your home. You’ll be paying interest on your closing costs throughout the life of the loan.
Finally, lenders usually raise the interest rates on no-closing-costs mortgages. That means you’ll be paying more over the life of the loan than you would with other mortgage types.
Skipping out on closing costs might be advantageous in the short run, but it will have financial consequences which you’ll be dealing with for years to come.
Is there any way to save on closing costs?
There are steps you can take to bring down your closing costs: