For current or future homebuyers, one of the most important aspects of buying a home is to budget for closing costs. There are quite a few expenses that one will pay at the closing table before receiving the keys to their home. While it is common for most people to expect to pay a down payment, many forget about the other costs of closing. A recent survey conducted concluded that over 40% of homebuyers were caught of guard by closing costs. In this article, we are going to teach you about closing costs, what they are, where they come from, and more. Here are closing costs, and what to expect to pay.
What Are Closing Costs?
For many first-time homebuyers, closing costs are often times news to them. However, closing costs have been a part of real estate transactions forever. One of the reasons that homebuyers are caught off guard by closing costs is that they do not know what they are or where they come from. It is important to know what closing costs are ahead of time to budget accordingly. According to the U.S. News and World Report:
“Closing costs encompass a variety of expenses above your property’s purchase price. They include things like lender fees, title insurance, government processing fees, upfront tax payments and homeowners insurance.”
To put that in everyday terms, closing costs are the cost of doing business. They are a collection of costs, fees, and payments made to multiple different parties who are involved in your real estate transaction. According to real estate organization Freddie Mac, closing costs may vary from location and situation. However, closing costs typically include:
- Government Recording Costs
- Appraisal Fees
- Credit Report Fees
- Lender Origination Fees
- Title Services
- Tax Services
- Surveys Fees
- Attorney Fees
- Underwriting Fees
How Much Do You Need To Close?
Aside from your down payment, you may be wondering how much you will need to bring to the closing table. Well, that number varies on many principles, mainly lending and service fees. It is important to know around how much you will need at closing, aside from your down payment, before looking for homes. This is a crucial step in the homebuying journey, and one that is often times overlooked. According to Freddie Mac, anything between 2 and 5% of the purchase price can be expected as closing costs. So, with a percentage given as a ballpark estimate, let us do some math.
For those who are looking to buy a home in, let us say, Louisville, Kentucky, your closing costs may vary. The median home sales price in Louisville has ticked up to around $260,000. With that in mind, and our percentages from before, you can expect to pay anywhere between $5,200 and $13,000. While that might seem high, remember that is an average amount – you could pay less or more based on location, price, and situation.
How To Be Prepared At Closing
Freddie Mac, once again being mentioned in this article, has some solid advice for homebuyers. They say:
“As you start your homebuying journey, take the time to get a sense of all costs involved – from your down payment to closing costs.”
In order to get the best knowledge of what you will actually need to purchase a house, it is smart to work with professionals. Our team, a team of trusted real estate professionals, can help you in your homebuying journey. A professional will be able to tell you how much you need to put down, how much you will need at closing, help you find a home, and more. Agents have connections and a requirements to continue to educate themselves on all real estate topics.
Closing Costs Conclusion
With the real estate market remaining hot in 2022, it is important to make sure you are as ready as possible for when that deal comes to your table. Having your budgets ready, accounts in good standing, and an ability to stay flexible goes a long way today. It is important to have a grasp on the basics of the real estate transaction from your real estate agent. There are many questions and people in this transaction, so get help. Closing costs are real, and often times a big surprise for buyers. Forget the surprises when buying your home!