Let’s just throw it out there in the open: closing costs aren’t included in the purchase of your home. I know that’s like ordering an entree at a Jersey diner and not getting dessert on the house, but unfortunately the two items are separate.
I recommend every client keep about $10,000 on the side outside of their home budget to account for the costs associated with closing on a home.
Admittedly, this is a very safe estimate, but would you rather have it for when you need it, or frantically dig deeper to close on your home?
This infographic suggests closing costs may range from 3-6% of a home’s purchase price, and that may be true if you’re accounting for the combo of Closing Costs and Total Cash to Close. So let’s break it down.
Closing Costs cover things such as:
- Loan Origination charges
- Appraisal fees
- Credit report fees
- Taxes/government fees
- Prepaid home insurance for 12 months
- Mortgage premium (if one exists)
- Prepaid interest
- Property taxes
OK, deep breath. We’re almost there.
More or less, those items come with fixed costs based on your qualifications and the charges from your lender. However, there are also some items you can shop for rates on, generally just referred to as “title fees.” But since I promised more of a breakdown, here is the itemized version of what those title fees include:
- Abstract or title search
- Closing protection letter
- Endorsement fees
- Lender’s title insurance
- Recording service fee
- Settlement agent fee
- Tax and assessments
- Tax certificate fees
- Wire fee
Now take these combined closing costs, add that to the down payment, and you’ll get your Cash to Close calculation.
Still have questions? Give me a shout. I’d be happy to talk you through the process of buying a home from start to finish.