Closing Costs to Be Prepared For
When new homebuyers are shopping for their first home, they tend to focus on the number one expense: the down payment. But there’s a myriad of additional costs, all of which can add up and potentially overwhelm a first-time buyer who hasn’t planned accordingly.
Below, we’ve reviewed some of the most common closing costs associated with buying a home.
While this list is a rough guide, new homebuyers are typically recommended to budget and asked by the lender to at least have 1.5% of their purchase price for closing costs (i.e. $7,500 for the purchase of a $500,000 home).
If that seems excessive and don’t have that full amount (1.5%) on top of your down payment, you can also provide a letter from you lawyer closing the transaction showing what the cost will be. Normally the letter will state $1,500. So these extra funds would just be needed on top of your down payment.
Common mortgage closing costs
Legal fees: Homebuyers will require the services of a lawyer/notary when closing the mortgage and signing papers. This can cost anywhere from $1,200 to $2,000.
Appraisal: If the mortgage is not default-insured, lenders will generally request an in-person appraisal of the property. Budget at least $300 to $500 for this service, or potentially more for higher-priced or remote properties.
Home inspection: While home inspections are often forgotten in competitive markets, they help protect the buyer by identifying potential issues with the home prior to the buyer taking possession. This can include hidden issues such as mould or structural problems. Plan to spend anywhere from $400 to $700 for a home inspection.
Title insurance: This is another form of insurance that is required by most lenders to close your mortgage. It’s important to know there are two forms of title insurance; one that protects the lender (required by most lenders) and a homeowner policy that protects you, the property owner, which can be purchased at your discretion. You will be required to pay the premium in both cases. Title insurance protects against risks related to the title of the home, including fraud or forgery, zoning non-compliance, encroachments, and easements over the property, for example. Budget a minimum of $300, although the cost can be higher for higher-priced properties.
additional costs after closing
As mentioned above, the excitement of taking possession of a new home can be short-lived once some of the additional expenses come due.
Other costs after closing can include moving costs, property insurance, condo fees, property taxes, furnishing the home, and minor repairs or upgrades.
To make the process of taking possession and moving into your new home as seamless and stress-free as possible, prepare for these standard costs ahead of time to avoid any surprises. Consult with a mortgage broker to review your budget and plan ahead of time.
Contact me today to learn more or to discuss your mortgage.
– Duane Springsteel