You can categorize the fees buyers are obligated to pay into three groups: The charges captured in the closing costs usually include the appraisal, tax service fees, title insurance, government taxes and prepaid costs like homeowners insurance, mortgage interest and property taxes. These fees are generally between 2% and 6% of the purchase price. How (and When) to Negotiate Closing CostsĬlosing costs include all of the fees associated with the mortgage transaction. Most experts recommend keeping around six months of expenses in reserves so that you avoid paying for unexpected emergencies with credit cards or personal loans. What’s valuable about many of these programs is that homebuyers can use them in place of their savings, which is a major financial boon when taking on homeownership. While these assistance programs are called down payment assistance programs, the funds typically can also be applied to the closing costs. There’s a slew of down payment assistance programs available for eligible buyers, including grants, matched savings accounts and low-interest loans. Borrowers should ask their lender what the total amount of the loan will be, including all of the closing costs, so there are no surprises as you near your close date. Tassone says if closing costs are not disclosed adequately, it can be a bombshell as the borrower gets closer to closing and receives their cash-to-close number. “You need to save up a bigger down payment, more for higher closing costs, and you still need money in reserves.”Ĭlosing costs often catch first-time homebuyers by surprise, especially if their lender decides not to disclose all of the cash they need to finalize the loan to “make their offer appear more competitive,” says Mike Tassone, co-founder at Own Up. “Nationally, home prices are up 17.2.%, so the nest egg you have to save has to be 17% bigger to afford to buy,” says Frank Nothaft, senior vice president and chief economist for CoreLogic. What First-time Homebuyers Should Know About Closing Costsįor buyers who are saving up for down payment and closing costs, be sure to look ahead at price appreciation because as home prices rise, so do closing costs. And despite California having some of the most expensive real estate in the country, it still made it to the list of 10 states with the lowest percentage closing costs. On the opposite end of the spectrum, states like Missouri not only have some of the lowest average home prices but also the lowest closing fees as a percentage of the sales price (at 0.71%).Ĭolorado also had some of the lowest closing cost percentage despite having double the average home prices to Missouris. States With the Lowest Total Fees as a Percentage of the Sales Price
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