Step-by-Step Series #1: Financing Your New Home Purchase-Know Your Closing Costs Before You Sign on the Dotted Line
Closing costs are easy to ignore in the excitement of searching for a new home, but they are a significant part of any real estate transaction. Fortunately, your lender can provide your expected costs during pre-approval, and your Duffey REALTOR® can help you negotiate closing costs with the seller.
“A home buyer needs to address the costs of closing prior to signing a binding contract,” says Ryan Hamil, Branch Sales Manager at MB Financial Bank, N.A., in Carrollton, Ga. “If closing costs are not addressed prior to the sale, buyers, especially first-time buyers, can go through sticker shock when they see their total funds needed to close.”
Closing costs are the upfront fees charged in connection with a mortgage loan transaction. These costs are different for each transaction, but they generally include fees for title examination and insurance, loan origination, property surveys, and legal work. Closing costs also may include prepaid items like escrow deposits for taxes and insurance.
Sellers in the current real estate market are generally prepared to assist in the closing costs, but details of the agreement must be negotiated ahead of any sales contract, Hamil said.
So as a buyer, how much can you expect the seller to help with closing costs?
“For all FHA (Federal Housing Administration) loans, the cap is 6 percent. For VA (Veterans Administration) loans, the cap is 4 percent. For conventional loans, the cap is 3 percent,” says Antonia Greenhaw of Principal Mortgage Group LLC, a residential mortgage company in Bremen, Ga.
Within these limits, closing costs are negotiable, and a REALTOR® has the experience and skills to negotiate a good deal for the buyer before the purchase is finalized, Greenhaw said.
“When you try to buy a house on your own, it’s often harder to negotiate. A REALTOR® brings negotiating power to the transaction and takes it out of the buyer’s hands.”