First Time Homebuyer’s Guide to Closing Costs

Closing costs forms part of the homebuying sales process and sales contract.  Few first time homebuyers realize that closing costs can be as much as 15 percent of the sales price and many lenders require you to pay for the closing costs upfront.  While some lenders can roll the closing costs into the loan package, knowing what these are ahead of time may help you plan your budget better and even negotiate down the final price so that you can afford the total closing costs as part of the deal.

It’s important to remember that the maximum loan amount offered by the lender is based on the sales price and not the net price (sales price minus closing costs) paid by the buyer.  Closing costs are allocated in several different ways, and you can work with your realtor and lender to arrange the best possible plan with your available funds and stay within your budget.

Understanding closing costs is one of the most important considerations when knowing what the buyer responsibilities are. Barron’s ‘Smart Consumer’s Guide to Home Buying’ explains that it’s important to understand that custom – and not law – dictate how closing costs are allocated and what the buyer and seller are required to pay as part of the contract.

The buyer is typically responsible for all fees and discount points of the loan.These are usually reflected at the latter part of the contract by the lender and may be different from one financial institution to another.In most cases, bankers will forgo this fee as part of your contract or waived for valued customers, however it is a must to know the precise estimate as early as the start of the loan financing process.

Buyers are also responsible for paying the premium of the home owner’s title insurance policy; in most cases, they will need to pay for this before the home purchasing process can even begin.Since the premium cost depends on the insurance company you may want to work with, the availability of extra cash can be a great idea as far as paying the premium is concerned that it may not get rolled into the loan.  It helps to shop around, so do some research about homeowner’s insurance policy rates and options before signing any contract.

In most cases, the following costs are the responsibility of the seller. Sales Commissions – these are allocated to both the buyer’s and seller’s agents, and will vary significantly by the agent you or the seller has contracted with.

Inspection Costs – the expense of having the various inspections and the other inspections required for homes before they are purchased, are covered by the home-seller.

Title Insurance – this is a common oversight by many first time homebuyers because many assume that they will need to take care of any costs associated with the title company.  In almost all cases, title insurance costs are listed as a closing cost and are the full responsibility of the seller.

Comprehending all of the closing-costs will provide you with a more thorough understanding of what the complete cost will be at closing.Early in the loan financing process, lenders can give you an estimate and may discuss with you the fees that you’ll be paying, discount points, and all other concerns related to your loan.

Author and Realtor Alexandria P. Anderson helps clients to find and purchase Edina Minnesota real estate as well as Edina condos and houses in the Twin Cities.

Tagged with: home buying basics • home buying information • steps to buying a home • tips for buying a home

Filed under: Low Cost Home

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