Today is the day! Excitement is in the air! You are buying your first home! Your house has been packed for weeks and….wait – there are closing costs?
What are closing costs?
Closing costs are fees associated with preparing a real estate transaction. From the time a house is listed to the market, to the offer and the acceptance, there are a myriad of other transactions going on.
Traditionally, the buyer pays the closing costs on a real estate transaction. Closing costs can average between 2% and 5 % of the purchase price.
Before the title of the property can be transferred from the seller to the buyer, a fee may have been included for any of the following:
- Checking credit report
- Loan origination; the charge for processing the loan paperwork
- Required or requested property inspections
- Discount points
- Property boundary survey
- Title insurance
But, don’t panic. Instead, be ready for the closing costs with a little knowledge of how they work.
Know the Loan Estimate and the Closing Disclosure
Within three days of receiving your loan application, your lender will provide you with a loan estimate report. Included in the report is an estimation of what the closing costs on your home may be. While these fees can change, the estimate does give you a heads up of how much extra is needed to finish your purchase.
Closing cost estimates can be found on page 2 in sections A, B and C of the loan estimate.
Section A is your origination cost and will include fees for application and other fees.
Section B includes the appraisal, flood certification and tax services. These are considered services you cannot shop around for and are usually lender specific.
Section C includes other services requested or required that are not lender specific and you can compare fees on such services as home inspections or title searches.
Your closing disclosure statement should be provided for you at least three business days before your closing appointment. This statement outlines all the closing fees for your transaction with their final costs. Take the time to compare your loan estimate and closing disclosure paperwork before your appointment, and don’t be shy about asking your lender to explain each service on your closing costs and why it is needed.
Work Some Closing Cost Magic
If the closing costs are weighing you down, here are a few strategies you can try.
Negotiate with your lender.
Many of the closing costs are negotiable. Origination fees may be based on a number of factors, but they are not set in stone. Start by asking if any of these fees can be waived or reduced. Your lender may choose to waive the fee or offer a credit to offset certain fees. Also, double check for completely unnecessary fees, such as administration services tacked on by the bank. Be firm about having these removed.
Look for no- or low-closing cost lenders.
If you are a veteran, you may qualify for a first time homeowner’s or other loan program that eliminates closing costs or holds them to 1% of your home loan. An FHA loan may allow you to absorb your closing costs into your down payment which is typically no larger than 3.5%
Roll your fees.
If you are concerned about having cash on hand after your down payment, ask if your closing costs can be added to the amount of the loan. If you qualify for a bit more than your purchase price, financing the closing costs can help you have ready cash for moving expenses.
Ask the seller to help out.
A motivated seller may offer to pay part or all of the closing costs. Has the house been on the market for a while? Did you offer their full asking price? If you are as motivated to move in as the seller is to move on, they may be willing to help out. Remember that they will have their own moving expenses and costs on their new home, so be fair when negotiating for the seller to help.
Are you confused? No worries! Contact the Chris Colgan Team. We are here to answer any real estate questions you have and get you into your new home smoothly. Let us help you seal a deal today.
Chris Colgan is the CEO and Team Leader of the Chris Colgan Real Estate Team. Chris
was born and raised in Gainesville, Virginia and has been in real estate for 10 years. He is a
member of the Re/Max Hall of Fame and is in the top 25 for sales in the state of Virginia out of
all Re/Max agents. He has been recognized as one of the United States’ and Canada’s Top
500 Marketing Experts by the National Association of Expert Advisors.