When you decide to buy a house, it is a big investment. You have probably been saving money for years and thinking about what financial construction to make so you can afford it. When you have managed to bring your finances to a satisfying level and the moment has finally come to buy a new home, you think that there are no more additional costs. But there is another additional cost that many do not know about or overlook it and can make you a financial problem at the moment. And that is closing costs. It is closely related to the mortgage loan and must be paid, even though you have already give down payment and will pay the monthly installments. In order not to experience an unpleasant surprise when you encounter this and get into financial trouble, read our guide, where we will explain everything related to this in detail.
What are closing costs?
These are the different fees you have to pay in order for a mortgage to be approved. It doesn’t matter if you buy or refinance, you have to pay for it anyway. Since there are a large number of fees, we will list only some of them.
Application – This applies to all costs of those who need to review and approve your application. Here you should definitely check what is included in the application fee, so that you can negotiate with the lender and ask him to include something else in it. There are even some lenders who don’t even charge for it.
Appraisal – You pay this to a specialized agency that will assess the value of the houses and give you information on whether the price is realistic.
Attorney – There are a lot of documents to be reviewed, so the help of an attorney will be very important to you. This service is mandatory in some states and not in others, so it is up to you to decide whether to hire an attorney.
Home inspection – Both because of the mortgage, and because of insurance and overall closing costs, it is necessary for professionals to do a home inspection. In this way, it will identify all the deficiencies and malfunctions that need to be repaired.
Escrow fee – This is paid to the agency or lawyer who will do the whole process. It is also not mandatory in every state.
Credit report – You must obtain a credit report because based on the score and history, interest will be formed that you have to pay. That is why it is very important to you.
These are some of the most important fees, and there are over 10 more fees you may have to pay. It varies from state to state, such as for pest inspection. Usually, insurance is also paid during the closing process. All the other fees you may have to pay are best to have your attorney explain to you, so as not to make a mistake somewhere during the process. Because as you can see the number of fees you potentially have to pay is huge.
Who pays for it?
You probably thought from the previous part of the text that you pay for everything. And this is usually the case except for the real estate commission, which is almost always paid by the seller. But there is a possibility to agree and that the seller also pays some part of the costs. It is usually possible to agree to share the cost in relation to taxes and the closing fee, but it all depends on you and the seller. There is no general rule as to how much you have to pay and how much he has to pay, but it is usually a matter of agreement between you two as well as the rules of the lender. This is something you will learn in more detail in a conversation with your mortgage agent.
Assessment of closing costs
There are various calculators that you can find online that will give you an approximate figure that you have to pay. It is usually 2 to 5 percent, sometimes 6 percent of the total amount you paid the house. In addition to the amount of money you have given for the house, the loan term, down payment, loan type, state laws and much more will also affect closing costs. You will get from your mortgage agent how much the closing costs are when you also get information about interest, monthly installments and everything else. From that amount that he presents to you then, small changes can happen later, but nothing significant, the price range will remain same.
Can you avoid it?
Theoretically yes, you can avoid paying closing costs. There is something called zero closing cost mortgage and as its name suggests, you won’t have to pay anything right away. But in the long run, it will be the same or even a little more expensive. If you opt for this option, you will pay for everything you did not pay immediately later in slightly higher monthly installments. And like anything that isn’t paid right away, it can be a little more expensive later, though nothing significant. There are also those lenders who will charge you a higher interest rate if you choose zero closing cost mortgage. So if you are not really in trouble with money, it is better not to opt for that option, than to try to negotiate with the seller to share part of the cost.
Two things are most important when it comes to closing costs. First of all, be aware that they exist and that you will have to pay, and then save a certain amount of money in advance, which will be used only for that. And then you must not to be shy. You openly ask the seller to share part of the cost with you, and the lender to reduce the price or include some additional service. This will most likely bring you big savings, and even if they reject you, you have nothing to lose.