WTF Are Closing Costs?
First time buyers hear the words "closing costs" pretty frequently - but no one really specifies just what they are or how much they cost. This can lead to some unpleasant surprises around closing time. Here are some of the most common questions about closing costs - and some answers to put your mind at ease.
What are closing costs?
Closing costs are the costs associated with closing on a house that aren't part of the purchase price. Basically, it's the cash you need to have on hand to pay for all those extra costs associated with buying a house.
How much money are we talkin' here?
Closing costs can really vary depending on your loan and the cost of the house. Generally you can assume that you're paying 2-5% of the price of the house in closing costs. You will generally have higher closing costs if you are putting down less than 20% in cash.
What do closing costs cover?
Closing costs cover things like attorneys fee, title insurance, transfer tax, and appraisal fee. All those little things you have to pay for when acquiring a major loan and a major piece of property. You may also have to put money in an escrow account (if you are paying less than 20% down) that includes up to a year's worth of property taxes and insurance.
Can I afford all that?
You should definitely be taking closing costs into account when you determine how much you can afford to spend on a house. You may also want to consider looking into programs like NACA that allow you to roll the closing costs into your loan, so that you don't have to have as much cash on hand.