When you embark on the exciting journey of buying a home, it’s not just about coming up with a down payment. There are various other expenses, beyond that initial lump sum, that you need to factor into your budget. Among these additional costs are what we call “closing costs.” Before you dive into the process of making a home your own, it’s crucial to understand and plan for these expenses.
Buying A Home: What are closing costs?
Closing costs are the fees that you must pay at the final stage when buying a home. They encompass a variety of charges from both the lender and other third-party entities involved in the home-buying process. Typically, closing costs range from 2% to 5% of the total purchase price of the home. This depends on the specific requirements of the lender and other parties involved.
Closing costs can be divided into two categories: recurring and non-recurring.
Recurring closing costs are ongoing expenses that you’ll encounter after the home purchase is completed. These include items such as:
- fire insurance premiums
- homeowners’ association dues
- property taxes
- homeowners’ insurance
- prepaid loan interest.
For instance, property taxes are usually the responsibility of the home seller until you sign the purchase contract.
Once you do, you’ll be accountable for property taxes, starting from the next billing cycle after your purchase. These taxes are typically paid annually and are prorated at the time of closing. This means you’ll reimburse the seller for taxes paid for the part of the year they no longer own the property.
In addition, you may be required to pay the full annual premium for homeowners’ insurance at the closing, along with an extra 2-3 months’ worth of monthly insurance payments. Prepaid loan interest is another recurring cost, beginning from the closing date and continuing monthly.
Non-recurring closing costs, on the other hand, are one-time fees that you’ll need to cover when you finalize the home purchase. These fees typically include various charges associated with the processing of your mortgage loan and the closing of the purchase transaction.
Common non-recurring closing costs include:
- Lender fees, which can vary depending on the lender you choose.
- Origination fee, a cost associated with processing your loan when buying a home.
- Document preparation fee, which covers the preparation of your loan documents.
- Credit report fee, used by the lender to obtain a copy of your credit report.
- Appraisal fee, covering the cost of a professional assessing the market value of the home you’re buying.
- Underwriting fee, associated with evaluating and verifying your loan application.
- Survey fee, which helps the lender confirm the property boundaries of the home.
It’s worth noting that these non-recurring costs can vary depending on the lender you choose, and it’s often possible to negotiate them. When negotiating, remember that the lender should also benefit from the terms you propose.
To ensure successful negotiations and reduce your overall closing costs when buying a home, it’s advisable to work with an experienced professional. Consider seeking assistance from a reputable real estate agent, such as Full Potential Real Estate, LLC.
A reputable real estate agent in Myrtle Beach can guide you through the intricacies of the home-buying process, help you understand these costs, and work with you to secure the best possible deal.
Don’t hesitate to reach out to Full Potential Real Estate, LLC. to inquire about their services and get expert advice on home buying or selling.
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