You'll encounter many new terms and ideas when buying your first home. For instance, you're probably expecting to hand over a down payment when you close the deal, but you may not realize that you'll be expected to pay closing costs as well. These charges can come as a surprise to many first-time homebuyers.
Closing costs are one part of the home-buying process, and knowing more about them will prepare you for what lies ahead. Covington Homes has worked with many new homeowners, and we understand how confusing the terminology can be. Here's what you need to know about closing costs and how they can affect you.
What are Closing Costs?
There are a lot of moving parts that go into buying a new home. Some of the process's portions come with fees you must pay once the sale is finalized. These are your closing costs.
These fees cover the tasks that have to be done to get the deal worked out. Here are the closing costs you're most likely to encounter.
- - Loan origination fees - Part of preparing a mortgage are the processing and underwriting of the loan. These are done so you can be approved to borrow the money you need for the purchase.
- - Survey and appraisal fees - These fees go to the people who make sure you aren't overpaying for your new home. Lenders don't want to give you a mortgage for more than the home is worth.
- - Title insurance - This process ensures that the property can legally be transferred from the seller to the buyer.
- - Homeowner's insurance - The first year of insurance premiums are usually added to the closing costs.
- - Escrow or closing fee - This payment is to the escrow agent who facilitates the closing process.
- - Property tax - The first six months of property taxes are usually paid at closing.
- - Mortgage points or buy-down option - This one can actually work in your favor. This fee is paid to the lender to give the borrower a lower interest rate on the loan. This is an incentive that some sellers offer under certain circumstances.
How do Closing Costs Work?
For the most part, the buyer pays the larger share of the closing costs. When you arrive to sign the papers to finalize the purchase, the total amount due is usually paid with a cashier's check. You'll know the exact amount you have to pay by then, but now you are probably wondering what that final tally looks like.
How Much are Closing Costs?
In general, expect the closing costs to be about 3 - 6% of the loan value. The exact amount will vary, depending on a few factors. Different states have different tax rates and laws that impact the bottom line, so it's impossible to nail down the precise cost without all the information about your exact situation. But don't worry; your lender will figure out what you need to know.
Within a few days of submitting a mortgage application, your lender is legally required to give you a Loan Estimate. This document outlines all the costs included in your loan, including the closing costs.
Before you finally close on your new home, you'll be given another document called the Closing Disclosure. This will have the final tally of all the closing costs, so you can get a cashier's check ready for closing. Be sure to compare the closing costs on both documents. If there's a big difference between the two, talk to your lender before the closing day arrives.
Ways to Reduce Closing Costs
Although there will always be some closing costs, you have a few options to lessen the price. First-time homebuyers may qualify for down payment assistance programs or grants to cover the costs. You can also shop between lenders to see if some have more favorable fees. One big difference you can make is to work with a seller who is willing to contribute to your closing costs as a sales incentive.
Covington Homes: Experienced and Trusted and Here to Help
Covington Homes is committed to building community with every home. Our neighborhoods are designed to create vibrant communities, and our customer service is second to none.
One example of how hard we work to get you into your dream home is all the ways we can make purchasing easy and simple. If you work with one of our trusted preferred lenders, you will receive a credit towards closing costs, the design center, or other promotions. Our preferred lenders offer a buy-down option and rate locks available that will reduce your interest rate for up to 12 months.
See all the ways we make it possible for you to have a beautiful, unique home at a price you can afford!
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