If you have finally put all the work in on finding, inspecting, and getting your offer accepted on your dream home, congratulations!
It took a lot of work to get here, and a not insignificant amount of money, as well. Unfortunately, things are not over quite yet, because on top of the purchase price that you agreed to with the seller of the home, you (and probably the seller, too) still have to pay closing costs.
If you’ve done your research, then you have probably heard the phrase “closing costs” tossed around a lot. It’s become just another common thing that people know.
But how well do you really know closing costs? Do you fully understand what they are, why they are part of property transactions, and what you’ll end up having to pay?
If not, then let us help you with this explainer on closing costs. By the end, you should know the basics on this important aspect of home buying.
What Are Closing Costs?
In their simplest form, closing costs are the extra payments you owe on top of your home’s agreed-upon price. They usually amount to 3 to 5% of your home’s cost. Do the math on your home to figure that out, maybe using a house payment calculator. But it will end up costing you thousands more.
What are those closing costs going toward? They pay for things such as the commission for the real estate agent, attorney fees, transfer taxes, and various escrow fees.
Who Pays Closing Costs?
It is interesting to note that closing costs are not just the responsibility of the home buyer. Sellers pay closing costs, too, often around 6%.
Sellers can pay for all of their own expenses related to the items we listed above. However, keep in mind that home buyers and sellers can negotiate on closing costs to see who will pay what. There is actually a lot of finagling that goes on once an offer has been accepted. Buyers and sellers can work together to determine who will take closing costs, make repairs, and more.
It is worth it to ask your agent about closing costs and whether anything can be done to make them easier on you. You may not get the answer you want, but you could always end up in a situation that’s better than before.
Buyers can also choose to finance their closing costs as well as their house. This is unusual, since most buyers pay them up front so they’re out of the way.
In the end, it will do you well to just save up for those closing costs that you know will be coming. They add a lot onto your final bill, but at least you now know more about them and what you can expect at that time.