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Ways to Cover Closing Costs
Most people have heard the term “closing costs” before, but not everyone has a good understanding of what they are, who pays for them, how much they can cost, and most importantly how you can lower how much you’ll pay. Let’s take a closer look to help you gain a better understanding of closing costs.
What are Closing Costs?
As the name suggests, closing costs are affiliated with your closing (also known as settlement). It is the finalization of the purchase or refinance of your real estate, such as a home. The closing includes the delivery of a deed, the signing of the mortgage documents, and the disbursement of funds.
Closing costs are the fees due at closing in addition to the purchase price of your property. These costs normally include but aren’t limited to:
- Origination fees
- Discount points
- Attorney’s fees
- Costs for title insurance
- Recording documents
- Prepayment of real estate taxes and insurance premiums held by the lender.
Both buyers and sellers may need to pay closing costs, and sometimes the seller will help the borrower pay some of the fees.
How Much Are Closing Costs?
Closing costs will vary by state, type of loan, and your lender. But a general rule of thumb is the cost will run between 2% – 5% of the cost of your loan. If you have a $250,000 mortgage, you can expect to pay somewhere between $5,000 – $12,500 in closing costs.
After receiving your mortgage application, a lender must provide you with a Loan Estimate. This estimate outlines all the details of your loan, including an estimate of your closing costs. There are factors that can slightly affect the numbers before you head to the closing table, but several days prior to settlement, you will receive a Closing Disclosure statement. This document outlines your original estimated closing costs and final closing costs, so you know exactly what you need to pay on closing day.
How Do You Pay Closings Costs?
There are different options available for paying closing costs, but the best solution for one person might not be the best solution for another.
Some may choose to pay for closing costs directly out of pocket from a personal checking or savings account. Others may decide to roll the closing cost amount into their mortgage, but this does increase the amount of the loan, and interest is paid on the closing costs.
There are also ways to reduce the amount of closing costs you pay. You can compare fees across lenders to make sure you are getting competitive fees and rates. And be on the lookout for excessive fees, sometimes called junk fees, that can quickly add up and increase your total costs.
When you’re ready to start your homebuying journey, sitting down with a Kish lending specialist is the best way to find out what all of your money-saving options are. You may qualify for a seller assist program, in which the seller may cover some or all of your closing costs.
If you’re a first-time homebuyer, you may also be eligible for a government-assisted program that can help you with closing costs or even your down payment.
There are a number of potential paths and solutions when it comes to closing costs, and your Kish team is here to help guide you to what works best for you. Connect with us today to start the conversation.
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