Before you buy a home, it’s important to plan. While most buyers consider how much they need to save for a down payment, many are surprised by the closing costs they have to pay. To ensure you aren’t caught off guard when it’s time to close on your home, you need to understand what it is and how much you should budget for.
What Are Closing Costs?
People are sometimes surprised by closing costs because they don’t know what they are. According to Bankrate:
“Closing costs are the fees and expenses you must pay before becoming the legal owner of a house, condo or townhome . . . It vary depending on the purchase price of the home and how it’s being financed . . .”
In other words, your closing costs are a collection of fees and payments involved with your transaction. According to Freddie Mac, while they can vary by location and situation, closing costs typically include the following:
- Government recording costs
- Appraisal fees
- Credit report fees
- Lender origination fees
- Title services
- Tax service fees
- Survey fees
- Attorney fees
- Underwriting Fees
How Much Will You Need To Budget for Closing Costs?
Understanding is important, but it is also critical to know what you’ll need to budget to cover them. According to the Freddie Mac article mentioned above, the costs to close are typically between 2% and 5% of the total purchase price of your home. With that in mind, here’s how you can get an idea of what you’ll need to cover.
Let’s say you find a home you want to purchase for the median price of $366,900. Based on the 2-5% Freddie Mac estimate, your closing fees could be roughly $7,500 and $18,500.
If you’re in the market for a home above or below this price range, your costs will be higher or lower.
What’s the Best Way To Make Sure You’re Prepared at Closing Time?
Freddie Mac provides great advice for homebuyers, saying:
“As you start your homebuying journey, take the time to understand all costs involved – from your down payment to closing costs.”
Work with a team of trusted real estate professionals to understand exactly how much you’ll need to budget. An agent can help connect you with a lender, and your expert team can answer any questions.
It’s important to plan for the fees and payments you’ll be responsible for at closing. Let’s connect so I can help you feel confident throughout the process.