Are You Ready to Pay Closing Costs?
There are many costs associated with purchasing a home. At least some costs such as the down payment goes toward the purchase price of a home but other costs do not help build equity but are a necessary part of the closing process. However, these additional expenses may easily exceed a prospective homeowner's initial budget without careful planning.
Understand more about closing costs and the events that can quickly cause costs to exceed the budget of a homeowner.
What Services Are Considered to be Closing Costs?
Closing costs can include a range of expenses and events that lead up to occupancy of a home. In general, these costs will be in addition to the cost of the home. This may be an issue for those homeowners who are making a small down payment and may not realize the size of the budget they may need to set aside in order to cover all of the associated expenses of closing on a home.
Buyer's closing costs often include services such as inspections, title policies, recording fees, and courier charges. In general, these are out-of-pocket expenses for prospective homebuyers. Closing costs can run to as much as 4 percent of a home's purchase price. Lenders generally provide a disclosure statement including closing fees at least three days before a buyer closes on a home.
What Are Non-Recurring Closing Costs for Buyers?
There are some fees that will be paid one time. Buyers will generally need to pay for non-recurring costs such as those for:
- A notary
- Wire fees
- Transfer taxes
- Attorney fees
- Lender fees based on the loan estimate
- Home Protection Plans
In some instances, a first-time buyer may get assistance from a government agency program to pay closing costs. Look into state or county down payment assistance programs for additional information. Other people may want to inquire about no-closing-cost mortgages as upfront fees are then covered through the loan but this route may cause higher interest rates on a loan and buyers may end up paying interest on those closing costs when they become part of the mortgage loan. The end result is that buyers will pay more to a lender over the long-term, rather than paying a smaller amount from their own pockets without a lender's involvement.
What Are Recurring Closing Costs?
Some fees will need to be paid more than once. Some recurring fees include:
- Property taxes
- Flood insurance in many areas
- Fire insurance premium
- Prepaid interest
- Private mortgage insurance or mutual premiums
In general, the individuals offering less than 20 percent down will need to put this prepaid amount into an impound/escrow account. This is not requirement for every loan or borrower.
And There May Be More
Additional closing costs may include the costs of moving. A buyer may need to pay a seller back for prepayment of property taxes or utilities. Speak with a local Redondo Beach agent and a selected lender to learn more about all of the closing costs and how much to budget to easily afford the extra fees and expenses of closing on a home.
Unexpected delays by the seller, such as changes to the closing date or move out dates can incur more expenses for buyers. This can include paying for a storage unit or spending more money on a moving company to store items for additional days and secure another date to move. Understand how timelines may be delayed and what expenses may arise from such an issue.