Are you in the process of buying a house? Congratulations! It doesn’t matter if you are a first-time home buyer or if you have bought multiple houses in your life; buying a house is always a big moment in anyone’s life!
However, if you are buying a house for the first time or haven’t bought one for several years, you might not realize (or remember) all of the different and detailed processes that have to be completed before a house can be successful bought (or sold).
It is not uncommon to hear the question “What are closing costs?” right before a home sale is supposed to be completed. This is because closing costs are amongst the most commonly “forgotten” (or not usually budgeted for) steps involved in buying a house.
However, closing costs need to be properly calculated for in order to get the house of your dreams (or any house at all!). Let’s go into some depth on this subject here and show you everything you need to know about closing costs.
What are closing costs on a house?
Closing costs on a house are a set of expenses that are added on top of the purchase price of your new property. They are essential to be covered at the end of the process of purchasing a property so that you can properly handle all hanging costs related to the lender and the title of the house.
The closing costs you will end up paying on a house will vary significantly, but they are based on the tax laws in the property’s area and the size of the loan from the lender. However, they generally account for between 2 to 5 percent of the purchase price of the house.
Closing costs on a house are primarily broken down into three different categories. These three different closing costs categories include:
Fees from the lender
While many lenders will bundle all of their fees into one broad expense known as an “origination fee”, others will break them down into different parts to clearly illustrate what certain closing costs are being collected for. When you see these following fees, you will know that they are usually specific fees from the lender:
- Appraisal costs
- Credit checks
- Administrative fees
- Courier fees
- Processing fees
- Underwriting fees
- Transfer taxes
- Flood or other certifications
Fees regarding the property’s title
Property title fees, in general, account for up to 70 percent of all of the closing costs on a house. Property title fees include costs for a title search, settlement services and insurance for the title. As a result of the fact that title services account for sure a high percentage of the closing costs, feel free to shop around for the best possible deal.
This is especially true when it comes to settlement services, which have a tendency to vary quite a bit.
Prepaid or escrow fees
Most home-loan lenders will require their borrowers to set up an escrow account that will handle and collect a certain designated amount of the property taxes and homeowner’s insurance.
It is very common during closing time for the lender to require you to, in essence, prepay your homeowner’s insurance and property taxes by several months to over a year and leave those funds safely in your escrow account to be properly disbursed at a later time.
Hopefully, this brief description of closing costs on a property will help you get ready in more than enough time to finish closing on your next house. If you still want further answers into the question of “What are closing costs?” or are looking for any other help in buying your next property, please contact us any time at Housso. Let’s get you into a new, beautiful home while avoiding any unnecessary pitfalls!