If you’re in the market for a new home, you’re probably trying to budget for all of the expenses that come with a home purchase. After all, the asking price isn’t necessarily the entire amount that you’ll pay – there are other expenses that will factor in to the final price. One such expense is your closing costs.
Closing costs are the miscellaneous fees you’ll pay when you sign the deal to buy your home. But how much do you need to save up for closing costs? Here’s what you need to know.
The General Guideline for What to Expect
Most mortgage advisors will tell you that you should expect to pay about 3 to 5 percent of your mortgage in closing costs. By law, your mortgage provider is obligated to give you a Good Faith Estimate of what your closing costs will be. Some lenders, though, will deliberately low-ball the estimate in order to have you sign the mortgage papers, only for you to discover that the actual expenses are much higher.
How Your Closing Costs Break Down
You’ll want to get estimates from several different lenders and compare the costs before signing a mortgage agreement. Your lender will give you a breakdown of costs in your Good Faith Estimate. But in general, there are certain closing costs you can expect to pay.
One cost that almost every lender includes is the loan origination fee, a small charge to compensate the lender for the time it takes to prepare the initial loan documents. This fee typically runs about 1 percent of the amount borrowed. There’s also a loan application fee, which will typically cost between $75 and $400.
You’ll be expected to pay your attorney fees as well as the lender’s attorney fees, along with the cost of a credit check. Your lender may require you to get private mortgage insurance, which can cost up to $1750. The title search and title insurance to protect your lender from title fraud will cost approximately $500, and you’ll also want to buy title insurance to protect yourself.
There are also several other closing costs to keep in mind, like escrow fees, notary fees, pest inspections, underwriting fees, and the mortgage broker’s commission. All in all, you’ll want to budget $5,000 in closing costs for every $100,000 you borrow.
Closing costs can be quite expensive, which is why you’ll want to make sure you budget appropriately when you buy your new home.