The purchase of your first property resembles entering the biggest maze where many weird and obscure things happen. You definitely have some savings for making the down payment. This is great news, but closing costs can take you by surprise at any celebration party, and this article is intended to help you to get ready for them in advance. Closing costs may be regarded as the toll fee for entering the world of ownership. Be ready to spend something around two and five percent of the total loan amount.
Let us make the simple calculations to understand how much money you will have to spend. For example, if you decide to buy a house worth $350,000 and you are willing to spend three percent for closing costs, you will have to add $10,500 to your down payment. It is a considerable sum of money that should be present in your bank account together with your deposit. You cannot depend on your credit card to pay for this fee, it should be a proven sum.
There are some helpful tools that may assist you in simplifying the process. Firstly, you have the so-called document known as Loan Estimate. Your lender should provide you with it within three days after your loan application. It is the government standard form that includes all the necessary information for you and takes the second page of the document. Secondly, you may try your luck and use the online calculators provided by Bankrate or NerdWallet. Do not forget that the results will be only estimations until you talk to a loan officer personally.
So, what are you paying for when you spend some money for closing costs? Lenders’ fees are the fees for covering the costs related to processing your loan and completing all the paperwork. Secondly, you have the title fees that guarantee that the house truly belongs to the seller and there will be no problems in transferring the property to you. Moreover, you have to pay for the appraisal of the house to make sure about its real value.
Escrow account is another point that should be mentioned. It is the special account that your lenders keep for your future payments for property taxes and insurance. Be ready to pay for several months of such payments and to imagine how uncomfortable it is to pay rent for the house that you still do not have.
The last but not the least issue you should remember is that you can ask the seller to cover some of your closing costs. It is called seller concessions and it is the legitimate way of negotiating, provided that there is no oversupply on the market. If the seller agrees, then this money will be directly used for your closing table expenses.
To sum up, you should better start collecting money in advance and be prepared for the upper limit of the above-mentioned range of the estimated sum for closing costs. It is always better to have more money than to face the lack of money and options.