Closing Costs Explained: What You Need to Know
Closing costs are a necessary of every Grande Dunes home sale, but first-time home buyers may not know what to expect from them or even expect them at all in the first place. No home buyer wants to be caught off guard during the final leg of their home-buying journey, so it’s important to do the research ahead of time. Here is everything a home buyer needs to know about closing costs and how they are affected by them.
What Are Closing Costs?
Closing costs are part of the closing process when someone buys or sells a home. The term encompasses all the extra fees that need to be paid for before a home can officially be purchased. Closing costs are in addition to other fees that need to be paid such as the down payment. The number of closing costs that someone will need to pay for will vary from sale to sale. Some homes may require more closing costs than others for a variety of reasons, including the home’s location, the local laws and regulations, and even the condition of the home.
Who Pays and How Much Do They Cost?
The responsibility of paying for closing costs will fall to the home buyer in almost every situation. However, there can be cases where the seller pays for the closing costs, but this is uncommon, and it needs to be agreed upon by both the buyer and seller. While it is possible, buyers shouldn’t count on convincing a seller to pay for the closing costs because the seller already has other additional costs they need to pay for, such as the agent fees for both their own agent and the buyer’s agent.
The actual cost of closing costs will vary from home to home. The general rule for estimating closing costs is that they will cost approximately 2-5% of the home’s total selling price. For example, for a home that sells for $200,000, the buyer will need to have anywhere from $4000-$10,000 in closing cost fees.
There are currently two ways to buy a home without having to pay for closing costs. The first is by being a member of any branch of the US military and using a Veterans Affairs (VA) loan. The second way is by using a Federal Housing Administration (FHA) loan, which is open to any United States citizen who qualifies and not just military members.
Closing Cost Examples
Because “closing costs” is an umbrella term that encapsulates many different smaller fees, home buyers should understand the different fees that closing costs represent. This can help them get a better idea of what their money is paying for.
- Transfer tax: This fee is applied when transferring a property title from the seller to the buyer.
- Appraisal fee: If the buyer is using a mortgage, their lender will require that the home be appraised to ensure it’s worth the money being lent. This fee covers a professional appraisal.
- Private Mortgage Insurance (PMI): If the buyer has a down payment less than 20%, they will need to pay the first month’s fee up front as well as an extra fee with each of their mortgage payments.
- VA funding fee: For buyers using a VA loan, the VA funding fee is what they will pay instead of closing costs. This ensures that the VA office is able to keep running in the future.
Buying a new home is an exciting time, but it can also be confusing with how much terminology is thrown around. Being familiar with things like closing costs ahead of time can be helpful both for the buyer and the people they’re working with.