Unknown and Unexpected: Closing Costs
The question of money and finances that surround buying a home is a challenging one. Specifically, how much money do I need? There is, of course, the money required to buy the home itself, but even here it gets complicated. The list price, after all, is not a hard number. Depending on the market conditions, the cover letter, the mood of the seller, the aggressiveness of the purchaser this number can rise up or down.
But, for the sake of expediency, let’s imagine a situation in which you’ve found the home, placed an offer, and that this offer is accepted. You’re now at a point where you’ve gotten the cost of the house all hammered out. That’s the end of it, right?
Anyone looking to buy a home needs to be aware of the charming concept of closing costs. These are costs that are not included in the sale price of the home itself, and so can come as an unsavory surprise for first time home buyers who haven’t experienced the labyrinths of mortgage companies, banks, and insurance agencies.
Rather than a single item, closing costs instead refer to a wide variety of things such as a home appraisal, paying for an attorney, getting insurance, and then various – and somewhat hidden – fees that vary depending on the lender you ultimately choose.
When all is said and done, you can expect to pay anywhere between 2% and 5% of the home’s final price on the closing fees. In real numbers, this means that if the final sale price you and the home seller agree upon is $225k, then you will want to have an extra $4.5k and $11.25k in available funds to go with it.
While a sobering realization, coming to terms with this fact now can become extremely helpful for you in the future.
For one thing, it means that you will want to shop around for a mortgage lending company that fits for you. Be sure to ask them about all of the fees associated with purchasing a home, and don’t be surprised if you find some distinct variation from place to place.
Finally, this means that it is smart to start budgeting for closing costs even before you place an offer. Knowing that you will be on the line for more than just the price of the house, consider setting aside a certain amount each month earmarked for the closing costs. Starting to save early can save you from an unpleasant amount of grief later down the road.