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Understanding Closing Costs

Closing Costs: Fees You Should Know About

In addition to your down payment and monthly mortgage payment, there are several other costs that come with buying a home. These are called closing costs.

Closing costs often represent one of the most unexpected expenses for homebuyers. They typically account for 2% to 5% of the home’s purchase price, so it’s important to save for them ahead of time. Closing costs are due on closing day, or the day you sign your loan paperwork and the property title is transferred into your name.

Everyone’s closing costs vary slightly, but below are some examples of what might be included:

Appraisal Fee: A fee paid to the appraiser to estimate the fair market value of your home.

Attorney Fees: If your state requires an attorney to be present at closing, you’ll be responsible for any applicable attorney fees.

Credit Report Fee: A fee paid to the lender that covers the cost of pulling your credit report. Your lender looks at your credit history to determine your creditworthiness, or how likely you are to repay your debt.

Discount Points: An optional, upfront fee that you can pay to lower your interest rate over the life of your loan. One point typically equals 1% of the loan amount.

Home Inspection Fee: A fee paid to the home inspector for assessing the home’s condition and identifying any needed repairs.

Origination Fee: A fee charged by the lender for originating or creating the loan. Typically 1% of the loan amount.

Prepaid Expenses: A portion of your property taxes, homeowner’s insurance, and accrued mortgage interest will need to be paid up front at closing.

Recording Fees: Fees paid to your local government for recording the real estate purchase and making it a part of public record.

Title Service Fees: Fees paid to the title company covering the title search, title examination, title insurance, and in some states, the fee for facilitating your closing.

Transfer Taxes: A tax imposed on the transfer of the title from the seller to the buyer.

Other Expenses to Save For

Aside from the actual real estate transaction, there are several other fees that come with buying a home. These will vary depending on your situation, but be sure you also save for:

Moving costs: From packing supplies to hiring a moving company, moving can hit you with a lot of unexpected expenses. Make sure you budget and save for these ahead of time.

Maintenance and repairs: Owning a home includes the added responsibility of upkeep. If an appliance breaks down or your roof starts to leak, you’ll have to cover the costs to repair it.

Utility bills: Moving from an apartment to a house? If you weren’t paying for water and garbage before, be aware that you’ll be responsible for these going forward, in addition to your normal utilities.

Homeowners’ Association (HOA) fees: If you move to a condo, townhouse, or subdivision, you may have to pay a monthly HOA fee to cover amenities, which may include trash removal, lawn care, and access to a community clubhouse, pool, or golf course, to name a few.

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