Closings costs are kinda like earnest money, in the sense that some homebuyers don't know what they are and why they have to pay them. I remember the first time we bought a home, my husband was shocked by the need to put down earnest money ... so I made sure he understood how closing costs work!
Here's some information to help you understand what they are and how much your closing costs might be when you close on your next home.
What Are Closing Costs?
Closing costs are a collection of fees and payments above the price of the home you're buying. The payments are made to a variety of individuals and organizations who are involved with your transaction. Closing costs can vary by location and situation, but they might include things like
- Government recording costs
- Appraisal fees
- Credit report fees
- Lender origination fees
- Title services
- Tax service fees
- Survey fees
- Underwriting Fees
How Much Will You Need To Budget for Closing Costs?
Understanding what closing costs include is important, but knowing what you'll need to budget to cover them is critical to achieving your homebuying goals. According to Freddie Mac, the costs to close are typically between 2% and 5% of the total purchase price of your home. With that in mind, here's how you can get an idea of what you'll need to cover your closing costs.
Let's say you find a home you want to purchase for $400,000. Based on the 2-5% Freddie Mac estimate, your closing fees could be between roughly $8,000 and $20,000.
Keep in mind, if you're in the market for a home above or below this price range, your closing costs will be higher or lower.
What's the Best Way To Make Sure You're Prepared At Closing Time?
Freddie Mac provides great advice for homebuyers, saying:
"As you start your homebuying journey, take the time to get a sense of all costs involved – from your down payment to closing costs."
The best way to understand what you'll need at the closing table is to work with a team of trusted real estate professionals (like the Cari McGee Team!). We can help connect you with a reliable and trustworthy lender, and together we'll get answers to the questions you might have.
Bottom Line
In today's real estate market, it's more important than ever to make sure your budget includes any fees and payments due at closing. Let's connect so you have the knowledge you need to be confident going into the homebuying process.
- Cari
