Buying your first house is an exciting and yet somewhat intimidating process. Purchasing real estate isn’t as simple as finding the right home and then handing over your down payment in exchange for the keys. On the contrary, there are layers of steps, processes, and tasks that must be completed by a multitude of service providers. You may be surprised to realize that in addition to your down payment, you’re also responsible for paying what’s known as closing costs, which could add up to thousands of dollars. Here’s a guide to get you started understanding closing costs for buyers.

💰 What Does the Term Closing Costs Mean?

During a real estate transaction, many service providers come together to see to it that all the I’s are dotted, and all the T’s are crossed. There are administrative assistants, couriers, clerks, and fees that all add up. In fact, professionals can narrow down the estimate to between one percent and eight percent of the value of the house you’re purchasing. The service providers all agree to provide their service up front and then collect payment at the close of the transaction.

🤔 How do You Know How Much Closing Costs will Total?

When you apply for your home mortgage loan, your lender will provide you will an estimate of anticipated closing costs. The forecast includes a breakdown of expected charges. Then, no less than three days before closing, you’ll receive an actual statement of closing costs. The real account of closing costs is the amount you’ll pay at the close of the transaction.

💵 Does the Buyer Always Pay Closing Costs?

Traditionally, the buyer pays closing costs on real estate transactions because the services provided apply to the house the buyer is purchasing. However, not all buyers are prepared to pay closing costs, and there are alternatives.

In most cases, home mortgage loans do not cover closing costs, which are paid by the buyer out-of-pocket. However, some lenders do understand the predicament and have developed programs that can assist with paying closing costs. There are also special loan programs that could cover part or all of the closing costs for you. Furthermore, you can always request that the seller accepts responsibility for part or all of the closing costs, which he or she could pay out of the proceeds from the sale of the home.

📝 What do Closing Costs Include?

Each state varies, and no two transactions are identical, but here’s a general idea of what you can expect with closing costs. Discuss closing costs with your real estate agent and your lender for a more detailed understanding.

Seller’s Real Estate Agent: The seller’s real estate agent is the first to get a piece of the pie. From those commissions, that agent offers financial compensation to the buyer’s agent for bringing the buyer to the deal.

Loan Officer: Your loan officer helped process your application and prepare your documents, seeing your approved loan to the underwriting department for next steps. For his or her services, the loan officer receives a fee.

Credit Report: When the loan officer ordered your credit reports, there was a fee. The financial institution paid the fee up-front and then recovers that cost at closing.

Underwriter: The underwriter took the application from the loan officer and converted that application into contracts and paperwork for payment schedules, etc. The underwriter also receives financial compensation at closing.

Lawyer: Not always, but in some cases, buyers are required to have real estate attorneys review all contracts in a real estate transaction.

Escrow Agent: The escrow agent is a third-party individual who holds the funds from the loan once released from the bank. At closing, that agent dispenses funds appropriately, gathers documents and signatures, and oversees the closing transaction.

Appraisers, Inspectors, Surveyors: The bank requires that the home you’re buying be appraised to confirm its fair market value, inspected to ensure the property is in good condition and surveyed to define the property lines. All of these service providers collect payment at closing.

Additional closing costs may include property taxes, private mortgage insurance, couriers, administrators, and other fees such as those for title check and transfer.

😃 Conclusion

When you’re not prepared for closing costs, or when you don’t understand what they are, you may find yourself frustrated and confused. Talk with your real estate agent and your lender for a clear understanding of how closing costs apply to you.

Your real estate agent is the best source of information about the local community and real estate topics. Give The Weinland Group a call today at 210-253-3133 to learn more about local areas, discuss selling a house, or tour available homes for sale.

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Closing Costs When Buying a Home
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Closing Costs When Buying a Home
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There's more to buying a home than placing a down payment and securing a mortgage loan. Buyers are often required to pay some or all of closing costs.
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The Weinland Group
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