When purchasing a home, all buyers need to account for closing costs. But what exactly are closing costs, what do they cost, and why are they necessary? These are just some of the questions first-time home buyers may be asking when planning to purchase a new home. It’s always best to be prepared for every part of the home buying process, and closing costs are a quintessential part of that. Here is everything buyers should know pertaining to closing costs.
What Are Closing Costs?
“Closing costs” is a term that includes all the different fees that need to be payed before the purchase of a Lee's Summit home can be finalized. Contrary to what some people might think, closing costs are not included in the down payment for the home, which must also be prepared separately. The number of closing costs a home buyer has to pay for will differ from home to home, as some homes will need more inspections and services than others. Closing costs can also depend on the local laws, type of mortgage chosen and the location of the home, so it’s important to look into these things beforehand.
Who Pays For Closing Costs?
In almost every case, the home buyer is the one who will pay for closing costs. However, there can be exceptions to this where the buyer will negotiate that the seller pays for all of the closing costs, though it’s uncommon for this to happen. Sellers already have their fair share of other costs to focus on such as the commission fee for any real estate agents helping the sale. That’s not to say that it will never happen, but if a buyer makes an offer that includes the seller paying for the closing costs, it’s likely that it will be rejected or a counteroffer will be made.
How Much Do Closing Costs Cost?
On average, closing costs will be roughly 2-5% of the home’s total value, and that’s in addition to what the buyer is putting down on the home. For example, buyers may need an extra $2,000-5,000 to purchase a home in addition to the $20,000 they may be putting down (20%) on a home that costs $100,000.
Homeowners who want to try to avoid or minimize closing costs may look into using different types of mortgages that may not require as many extra closing costs. Two of these types of mortgages are VA (Veterans Affairs) loans, which are only available to United States veterans, and FHA (Federal Housing Administration) loans.
What Are Examples of Closing Costs?
There are many different potential closing costs home buyers may have to pay for when purchasing a new home. Here are some of the different fees, common and rare, that may appear on the final bill.
- Home inspection fee: Every buyer purchasing a home will be expected to hire a home inspector to give the home a thorough inspection. However, in some states, the buyer pays for the inspection themselves prior to close.
- Private Mortgage Insurance (PMI): Buyers using a loan that doesn’t require a 20% down payment may be expected to pay mortgage insurance because of it, and the lender will likely require the first month’s payment at closing.
- Mold testing fee: If mold is found in the home or was known to be in the home before the sale, the buyer will be required to have it tested to make sure it isn’t dangerous or remove it.
- Transfer tax: A fee that comes with transferring a property fee from the seller to the buyer. Not all states have transfer tax fees.
- Property Taxes: Though property taxes are pro-rated to the closing date, buyers may be responsible for a pro-rated protion to create an escrow account if they have a mortgage.
- Copy fees, Legal fees, Appraisal costs and Escrow or Title company service fees.
If unprepared, closing costs can come as an unwelcome surprised, but if buyers keep this information in mind, they should find that the costs just another step in the home buying process.