Closing and other costs when buying a home
When determining how much home you can afford, I notice people tend to focus on the down payment and how much of a loan they can qualify for. While your down payment is critically important, equally important is analyzing the cash you’ll need on hand for closing costs and other expenses.
Closing costs will vary based on your state and your lender, but typically range from 1 to 5% of your purchase price. Depending on which lender or loan program you choose, you may have some or all of the following fees:
- Loan fees
- Interest rate discount points
- Appraisal fee
- Credit report fee
- Tax service fee
A third-party settlement company will facilitate the closing of your real estate transaction. You should be prepared for the fees associated with these service providers (NOTE: Other fees may be assessed depending on circumstances particular to your loan closing):
- Escrow/closing fee
- Title insurance fee
- Wire fee
- County/City recording fee
- Document preparation fee
It’s important to note that some states require an attorney to handle real estate transactions. Be sure to check with your local lender or real estate agent to find out if you’ll be subject to attorney fees.
In addition to traditional closing costs, you’ll also need to be prepared for some property-related expenses. For example, you may need to prepay some of your property tax at closing, and most lenders require you to pay your homeowner’s hazard insurance at closing as well. And depending where your property is located, you may also need flood insurance.
Overall, these are the main costs associated with buying a home. It may seem like a lot to digest, but don’t worry, your local lender will outline the various costs associated with your loan program in what we call a “good-faith estimate.”
Happy house hunting!