Buying a home is like planning a big road trip—you’re excited about the destination, but you’ve got to prepare for the pit stops along the way. It may entail a few phantom costs such as homeowners’ insurance, moving costs, and home repairs. These are items that can catch you off guard if you don’t budget for them. One of the biggest “pit stops” in the home-buying process is closing costs. They’re not as exciting as picking out paint colors for your new living room, but this is the final step before getting the keys to your dream home.
What Are Closing Costs?
Closing costs are the fees and expenses you pay to finalize a home purchase, separate from your down payment and the price of the home. They cover services like appraisals, title insurance, and legal paperwork.
To get a better picture, take this example below:
Elle and Chris are buying their first home in San Diego for $500,000. They’ve been saving for years and are ready to put down a solid down payment, but their lender reminds them that there’s more to budget for than just the upfront payment, that includes the closing costs, which typically range from 2% to 5% of the home price, or anywhere from $10,000 to $25,000 in additional expenses at the closing table.
The Breakdown: What’s included in the closing costs?
Here’s what Elle and Chris’ closing costs look like:
- Loan Origination Fee: $3,000 to cover the lender’s processing fee.
- Appraisal Fee: $600 to ensure the home’s value matches the loan amount.
- Title Insurance: $1,000 to protect them and the lender against potential title disputes.
- Escrow Fees: $2,000 for managing paperwork and transferring funds.
- Home Inspection: $500 to ensure the house is in good condition.
In total, Elle and Chris’ closing costs come to around $8,100, or about 2% of the purchase price.
Why It Matters
By budgeting ahead and taking advice from their lender, Elle and Chris are ready to pay these fees at closing. There are some instances where buyers can negotiate with the seller to cover some of the closing costs. Get help from a trusted realtor® to make this possible.
Working with your lender to get a loan estimate early in the process will help you be ready for these pit stops. This will ensure a smooth drive to your destination—the home of your dreams. If you have any questions and need further assistance in your home purchase in San Diego, reach out to our friendly agents at Broadpoint Properties.