Factor in closing costs

Real Estate

Factor in closing costs when you are saving for a home.  The closing costs are in addition to the down payment that you need, but they should not hold you back.  There are plenty of buyers and sellers who still believe that 20% down payment is required, but this is not true.  When you contact a lender for pre-approval they will help you get the right loan program.  There are numerous loan programs, some that require as little as 3% down, some 0% if you served our country.

You may be asking, "What are closing costs?".  Some people believe they know, but can often get surprised.  Freddie Mac defines closing costs as:

“Closing costs, also called settlement fees, will need to be paid when you obtain a mortgage.  These are fees charged by people representing your purchase, including your lender, real estate agent, and other third parties involved in the transaction. Closing costs are typically between 2 and 5% of your purchase price.”

But let's break it down even further.  You may see these fees broken down on your Good Faith, provided by a lender.  Keep in mind that they can differ based on where and how you are purchasing your home.

Underwriting fees
Attorney/ closing agent fees
Survey fee
Tax Service fees
Title Services, insurance and searches
Lender Origination fees
Government recording fees
Appraisal fee
Credit Reporting fees
Some first time home buyers have asked if there is a way to avoid closing costs, and the plain truth is no.  Now there are loan programs where you can add the closing costs to the loan balance, but you pay interest on the costs.  After all, some one has to pay the fees or the loan will not close.  Keep in mind that you always have the option to negotiate with the seller who will pay what fees. A good realtor can help get this goal done.