Lending restrictions are finally easing. More 20- and 30-somethings are making the leap to buying a home. More people are selling their existing homes and building brand new stick built homes. Yet closing costs will inevitably take a large bite out of your wallet at settlement, anywhere from a few to several thousand dollars.








1. Closing Costs & Down-payments are 2 Different Things


A down payment is an amount of money that you hand over to your mortgage company to secure the loan. 20% is generally the standard for home buying. This is paid when you sign off on the loan paperwork, but it is not considered a closing cost.


Closing costs include things like application fees, administrative fees, title fees, appraisal fees, postage and handling fees, and lastly attorney’s fees. Some goes to third party companies, while the rest goes to the bank. You accrue these fees regardless if you are putting money down on a home or not.




2. You must make sure you have enough for closing costs & down payment


In today’s real estate market do not count on a loan to help cover your closing costs. Lenders will want to see that the homebuyer has enough cash on hand to meet these expenses, and still have about 6 months’ worth of money put away once the transaction settles.




3. Closing Costs Vary from Company to Company


The cost of your title insurance policy and government recording fees vary on the purchase price of the home, and the majority of settlement costs are usually paid by the homebuyer. However, the seller can’t just run off once the contracts are signed. Seller fees include a fee for mortgage release attainment and deed preparations. The settlement fee is usually split between the buyer and the seller. Homebuyer fees include a title examination fee, location survey fee, and an administrative fee. Title company’s reserve the right to charge additional fees unique to each transaction, but you should be told about most of the fees up front.




4. Some Closing Costs Are Tax Deductible


You can deduct pre-paid mortgage interest and property taxes paid at the settlement. But, to claim these deductions you need to itemize your return and waive the standard deduction. To find out more about what you can and cannot deduct, please read the IRS’s article on Homeownership costs that are tax-deductible.




5. Closing Costs Are Based On What You Borrow


Individual closing costs vary depending on your lender, yet the baseline for calculating them is still the same. You can run anywhere from 2% – 5% of the homes purchase price. That means that for every $100,000 you pay for your home, you are looking at $2,000 – $5,000 in closing costs.




Closing costs can be a barrier to home buying is you have not done your research. Understand what the fees are puts you in the best position to purchase your dream home, be it new construction or an existing home.




Until Next Time Friends…
Nicole D., Resident Toback Blogger

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