Buyer closing costs are essentially the extra money that is needed in order to buy a home, in addition to the down payment. When you are beginning to apply for a loan or making an offer on a home, this phrase will come up. There are several decisions you can make regarding how and when you pay these fees.
What is included in buyer closing costs?
There are several different fees and charges that make up buyer closing costs. The fees will all be listed on your Buyers/Borrowers Closing Statement, and you can ask any remaining questions during closing. From experience, the closing meeting is kind of a whirlwind because there are so many documents to sign and discuss, so we went through it line by line with our buyer’s agent before the meeting.
*New loan charges
*Appraisal Fees
*Credit Report Fee
*Interest on loan
*Home Owner’s insurance (1 year up front)
*Property Taxes (1 year up front)
*Closing Fee to Title Company
*Title Charges (owner and lenders policy)
*Water Transfer Fees
Your exclusive buyer’s agent will be able to give you a rough estimate of the closing costs before you make an offer on the home. That way, you can budget appropriately.
Most of these fees and charges cannot be reduced, but, you can shop around for home insurance and this can make a big difference in you closing costs.
When are buyer closing costs paid?
Buyer closing costs are paid at the closing meeting. They will be included as a lump sum along with your down payment.
There are two different ways to pay your closing costs.
You can pay your own closing costs, or you can ask the seller to pay them. You will make this decision when you make an offer on a home. If you ask the seller to pay closing costs it generally increases the sale price of the home by the same amount. For example, you could offer $210,000 on a home and pay your own closing costs of approximately $5,000. Or, you can offer $215,000 on the same home, and ask the seller to pay your closing costs.
There are pros and cons to both options.
Seller Pays: The up side to this is that you will not have to have the cash for the closing costs at your closing meeting. The down side is, generally you make a higher offer on the home, and then the seller pays closing costs. This means that basically you will be paying interest on your closing costs.
Buyer Pays: The up side to this option is that if you pay the closing costs yourself in “cash”, you will not pay interest on closing costs. The down side is, you will need to budget for these costs along with costs to move, any repairs that need to be made to the home before moving in, and down payment.
You may wish to discuss the ins and outs of your situation with your agent to decide the best course of action. In the end, many people decide to look for homes in a price range that allows them to pay their own closing costs.