Calculating closing costs

Four Corners community events

by Garett Dickinson

BUDGETING FOR A HOME PURCHASE CAN BE EXCITING, YET MAY SEEM DAUNTING. There are a variety of costs to consider and it is essential to address each one. A first-time homebuyer may feel overwhelmed by the many expenditures they will encounter on the road to homeownership. However, preparing for these costs is just a question of knowing what will be coming your way and addressing each one in the proper order.

One of the most important considerations for prospective homebuyers is to prepare for all costs, including the closing costs, from the very beginning. It can be easy to focus on and budget for the list price of the home, but this will leave a gap when it comes to addressing all of the expenditures that will eventually accrue.

Closing costs can vary depending on the neighborhood, homeowner’s association (HOA) fees and the buyer’s specific circumstance, so consulting with a realtor or lender helps future buyers understand potential costs prior to submitting an offer.

Buyers may not realize that some costs are negotiable, and the seller may assist with costs upon request. Closing costs typically range from 2% to 5% of the purchase price of the home. Expenses such as the appraisal fee, mortgage insurance (if required), and a variety of taxes and additional types of insurance are all items to take into consideration.

A proper budget for a home should include the price of the home, the closing costs and preparation for upcoming future expenses such as potential repair or replacement expenses regarding the home, such as plumbing or roofing and potential HOA fees.

Having a solid understanding of what the first year in a home will look like can help set expectations for what kind of home purchase is feasible. It is also important to not maximize the size of the upcoming loan if that will take all of the available financial resources from the buyer.

CLOSING COSTS THAT A BUYER MAY ENCOUNTER INCLUDE:

COSTS RELATED TO THE LOAN: These can include appraisal fees to determine the home’s worth, fees for credit reporting, possible mortgage insurance for those putting less than 20% down, and prepaid interest for the time that lapses between the closing and the first mortgage payment.

TITLE-RELATED COSTS: Title search and insurance costs ensure there are no preexisting lien or ownership issues and protect the buyer against title disputes, and the lender and owner title policies which will protect both entities.

HOMEOWNER’S INSURANCE AND SURVEY/INSPECTION: Insurance will typically be paid upfront for the first year at the time of the closing and inspections and surveys will allow professionals to assess the the condition of the home and other structures as well as its legal boundary lines.

ASSOCIATED FEES AND TAXES: Property taxes may need to be reimbursed to the original owner and transfer taxes will cover the property changing hands, while recording fees will pay for the appropriate government agency to record the sale of the home. These are in addition to the fees that will be charged by an attorney or closing agent to finalize the sale of the home.

ESCROW COSTS: Escrow will cover taxes and additional costs through a prepaid deposit held by the lender.

Since every buyer’s situation is different, professional assistance will go a long way toward relieving stress and creating proper preparedness. A variety of professionals are available to help, including financial advisors, real estate agents and mortgage brokers and there are even online tools to help. These can all be invaluable in assessing each unique situation and advising prospective buyers on what they should expect as they begin their path to homeownership.

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