First Time Homebuyer? What You Need to Know About Closing Costs
Closing costs play a major factor in every home buying contract. Most first time homebuyers do not realize how significant closing costs are in a home’s final price; some can go as high as 15 percent. Lenders may often require buyers to pay for these costs upfront while some lenders include closing costs into the buyer’s loan. Recognizing what these costs are as early as possible will help homebuyers budget their funds and even negotiate for a lower contract price.
It’s important to remember that the maximum loan amount offered by the lender is based on the sales price and not the net price (sales price minus closing costs) paid by the buyer. Closing costs are allocated in several different ways, and you can work with your Realtor and lender to arrange the best possible plan with your available funds and stay within your budget.
The first step in understanding closing costs is to learn what buyers are typically responsible for. Barron’s ‘Smart Consumer’s Guide to Home Buying’ explains that it’s important to understand that custom – and not law – dictate how closing costs are allocated and what the buyer and seller are required to pay as part of the contract.
Buyers are responsible for paying all fees and discount points of the loan. These costs are usually added by the lender at the end of the contract and the costs may vary depending on the financial institution. Bankers sometimes waive these fees for favored customers or as part of the contract, however, you still need to estimate these costs as early as possible during the loan financing process.
Paying the homeowner’s title insurance policy premium is also the responsibility of the buyer. This has to be paid first even before the home purchasing process begins in most cases. It would be better to pay for this premium upfront so that it won’t be included into your loan package. The premium differs with each insurance company so do some research on insurance policy rates for homeowners and shop around for the best deal.
In most cases, the following costs are the responsibility of the seller. Sales Commissions – these are allocated to both the buyer’s and seller’s agents, and will vary significantly by the agent you or the seller has contracted with.
Inspection Costs – the costs of termite inspections and other testing required for the home before the purchase can be completed are assumed by the seller.
Title’s insurance – Insurance on the title are traditionally shouldered by the seller as part of closing costs. Many first time homebuyers incorrectly assume that they need to take care of these costs.
Recognizing each component of the closing costs can give any homebuyer an accurate estimate of the final contract price. You can ask for an estimate from your lender way ahead of the signing date as most are willing to breakdown all these costs and explain how they fit in your loan package.
When searching for Minnesota homes for sale, the internet is an invaluable resource. New homebuyers can use the MN MLS to view current listings of homes and real estate throughout the state.
