Buyers Closing Costs.. EXPLAINED!

Did you know that there are more costs to buying a home than the down payment and purchase price? In this video, I’m going to explain the true costs of becoming a homeowner that most first-time buyers don’t know about. We’ll explore everything from loan costs to appraisal fees so you’ll know exactly what to expect.

Cost Of The Loan

It’s awesome that you’ve decided you want to be a homeowner, and your plan to get pre-approved is a great start to the process. One of the things that a lot of new, first-time homebuyers don’t understand, however, is that there are more costs than they might think. It’s not just the minimum down payment required that you need to take into account. 

Regardless of the loan program you’re choosing, there are also other key costs involved in getting a home loan. First and foremost, every lender is going to have some sort of cost to work with their team. They’re either going to charge you an actual line item fee, to be transparent, or they’re going to build it into their interest rate with a no-fee loan. Either way, you’re paying for it as a consumer.

Third-Party Charges

There are also a lot of third-party charges you’ll need to pay. This includes prepaid interest, prepaid property taxes, and prepaid insurance—all of which can add up quickly. In Washington State, we pay our property taxes twice a year. Depending on when you close, you could have anywhere 3-7 months of prepaid property taxes due at closing. 

Remember, property taxes aren’t cheap. You’re also going to be required to have prepaid homeowner’s insurance. In Washington, your homeowner’s insurance is paid once a year. Additionally, your first year has to be paid upfront—plus a small cushion. This can add up quickly. You’ll also have prepaid interest. This interest accrues starting the day you close through the remainder of the month and is paid at closing. 

Other third parties fees outside of the loan are inspection fees. You might have a septic inspection, sewer scopes, and home, roof, and structural inspections. There are different things that your agent is going to recommend to make sure that you’ve vetted the home properly. In addition to that, earnest money is due when you make your offer and it’s accepted. While the earnest money does come out of the total down payment and closing costs, you need to have the money ready at the time of offer acceptance, not at the end. Lastly, you’ll need to pay for your title, escrow, and appraisal fees. 

Total Closing Costs

When it comes to total closing costs, expect to pay 2-3% of the purchase price in addition to your down payment. If you look at a lot of these online lenders, you’ll find in the fine print is they also charge points. Points are an additional fee paid to incentivize the lender to give you a cheaper rate than the market would typically have to bear that day. This is what can get confusing.

Some lenders, like Dwell, will show you both options. You can get a loan with points or a loan without points. The more points you pay, the higher the fee and the lower your interest rate. A good rule of thumb is that 1 point equals 1% of the loan amount. This means that 1 point on a $400,000 loan would be an additional $4,000 to get a lower interest rate. 

Make sure that when you’re going through the process, your lender not only pre-approves you but transparently educates you on the total cost of acquiring your home. And if you have any questions, make sure to contact me and I’ll be happy to guide you further.

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