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What You Need to Know About Closing Costs

Posted by Vanessa Freeman on February 27, 2018

What You Need to Know About Closing Costs Couple Featured ImageAs you get ready to purchase a home, it’s important to budget for closing costs if you want everything to go smoothly. Too many people forget about this expense, causing their financing to be delayed or to fall through completely. If this is your first time buying a home especially, be sure to take the time to learn more.

They Include Many Different Things

The bank might require you to pay closing costs as a large lump-sum payment, but it’s actually made up of many smaller payments. These fees range from a small $30 fee to check your credit to large amounts like prepayment of your annual property taxes. Each situation is slightly different, but some of the things you might have to pay are:

Document preparation fees

Legal fees

Property taxes

Homeowners’ insurance

Mortgage insurance

Loan origination fees

Condo association fees 

It’s important to ask your Area Manager [ http://blog.streetsideedmonton.com/blog/questions-ask-visiting-show-home-d1 ] what types of fees you’ll have to pay at closing. 

You'll Want to Prepare Ahead of Time 

In general, you can usually assume your closing costs will be around two percent of the total cost of the home. Two percent doesn’t sound like a lot of money, but if you’re purchasing a $350,000 home, it comes out to $7,000. This amount of money is in addition to the down payment you’d be required to pay, which is a minimum of $17,500 on that same $350,000 home. 

You may not need to scramble too much if your closing costs were only $1,000, but suddenly coming up with $7,000 is a bit of a stretch for many people. That’s why it’s so important to plan ahead. 

What You Need to Know About Closing Costs Change ImageAdditional Fees Apply to Brand-New Homes

If you’re purchasing a brand-new home, there are a few extra fees you’ll have to pay when you close on the home. The first is the new home warranty fee, which is $2,000. The second is GST, which is an amount equal to five percent of the home. Fortunately, these fees may be included in the general price, so they’re not necessarily something you have to plan for on closing day. However, it’s always better to be safe than sorry, so ask before you make assumptions.

You'll Need Cash for Closing Costs

Closing costs need to be paid with readily available cash. It would probably be awkward to show up with a briefcase full of $100 bills totalling the $10,000 you need, so most people head to the bank for a cashier’s check or a money order. There’s a small fee to make this out, but it’s meant to guarantee the money is in your account. The mortgage lender is not likely to take a personal check even though you have the funds.

You’ll Probably Be Responsible If You Buy New Construction

First-time home buyers don’t have the ability to rely on a big equity check from the sale of another home. Often, those buying their first home ask the seller to pay all or some of the closing costs to help ease the burden. Unfortunately, when you’re buying a brand-new home, you simply don’t have the negotiating power of working with a motivated seller. That’s yet another reason why it’s so important to budget for these costs. 

Sometimes builders offer promotions that include the option of covering closing costs. If you see a deal like this, you might want to act quickly. However, you should also be sure to look at the final cost of the home. Those closing costs may have been woven into the starting price. That may make sense for your family, but you may not want to take on higher monthly payments just to cover the closing costs.

Closing costs are an added expense and you'll want to have the funds set aside ahead of time to avoid any hangups. Talk to an Area Manager or a mortgage specialist to get an idea of how much you need so you can be sure to find the perfect home for your budget.

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Photo credits: couple, change
Click here to get your free monthly budget worksheet today!

Topics: mortgage & financial, first time home buyer