Closing Costs: What Do They Mean for Home Buyers?

Posted by Marc Rasmussen on Friday, June 22nd, 2018 at 10:42am.

What You Need To Know About Closing CostsWhen buying or selling a home, it is a fact of life that there are going to be closing costs to pay before everything is finalized. For a first-time home buyer, these fees may seem unexpected or unnecessary, especially if the buyer is unfamiliar with the purpose they serve, but they are a completely necessary and normal part of the buying and selling process. 

For informational purposes only. Always consult with a financial advisor before proceeding with any real estate transaction.

What Are Closing Costs?

“Closing costs” is an umbrella term that encompasses all extra fees that require payment before a home can be purchased. The closing costs are not the same as a down payment and have to be payed in addition to any down payment the buyer is providing. The number of closing costs that require payment will depend on the home, the location, local laws, and so on. Some homes may require more services that will be added to the closing costs, and some may require fewer.

How Much Do They Cost and Who Pays?

The actual cost of a home’s closing costs will fluctuate depending on the selling price of the home in St. Petersburg, but to estimate what this will be, plan to owe 2-5% of the home’s total cost. For example, if a home sells for $100,000, $2,000-5000 extra will need to be provided for the closing costs. 

In most cases, the home buyer will be the one expected to pay for the closing costs. However, there are cases where the buyer can negotiate that the seller pays for closing costs, though these are not common because the seller has other costs they need to pay for when selling their home such as the real estate agent commission fee for both their own agent and the buyer’s agent. 

There are also some mortgages that don’t require any closing costs to be paid. These are special loans such as a Veterans Affairs (VA) or Federal Housing Administration (FHA) loan. In the case of a VA loan, only United States Army veterans are allowed to apply

What Are Some of the Different Fees?

There is a wide variety of different fees can build up when buying a home. Here are some of the different kinds of fees that may be required upon buying a new home:

  • Appraisal fee: Lenders may require an appraisal of the home to ensure the home is worth the money being paid for it.
  • Home inspection fee: After an offer on a home has been accepted, the buyer has a chance to hire a home inspector. This fee covers the inspection of the home.
  • Private Mortgage Insurance (PMI): When a buyer pays less than a 20% down payment, they may be required to pay PMI, and if this is the case, the lender could require the first month’s payment to be included in the closing costs. 
  • Property tax: Many lenders require the buyer to provide all property taxes that are due within the first 60 days for security reasons.
  • Transfer tax: When transferring a property title from the seller to the buyer, there is a standard fee.
  • VA funding fee: If using a VA loan, the VA office will require the home buyer to pay a VA funding fee, which allows the service to stay open in the future. 

In all the hustle and bustle of buying a new home, buyers may find themselves forgetting about closing costs, but this is what all buyers should know in order to be prepared for them.

For informational purposes only. Always consult with a financial advisor before proceeding with any real estate transaction.

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