Nobody likes to be surprised by unexpected expenses or fees when making a purchase. When making a major purchase, such as when buying a new home, the costs can be significant. You want to review all of the costs associated with your purchase well ahead of your closing date to ensure that you can afford to buy the home that you have selected.
The last thing you want to do is get to the closing table and realize that you do not have enough money to close on your purchase.
The Down Payment
Typically, the largest expense associated with a new home purchase relates to the down payment on your home. With most mortgages, whether it’s a 15 year or a 30 year mortgage, a down payment of at least five to 20 percent of the sales price is required, and this cost is paid at the closing table.
You can plan for the down payment ahead of time by getting pre-approved for a loan before you start looking at properties. Through the pre-approval process, your lender or mortgage broker will review your finances to determine the maximum loan amount you may qualify for and to ensure that you have enough cash on-hand for the down payment required.
The Closing Costs
In addition to the down payment associated with your loan, there are also mortgage closing costs related to the closing and the mortgage. These costs include the title company’s fees, escrows for property taxes and insurance, a property appraisal, lender’s fees, mortgage broker’s fees and more.
You can estimate approximately 3 to 5 percent of the sales price for closing costs. However, when you begin the mortgage application process, request a closing costs estimate from your lender or broker. Then, request a revised estimated of closing costs before closing.
Initially, you can estimate the down payment and closing costs of your purchase as you save up enough money to make your purchase. Once you believe you may have enough money saved for your purchase, talk to a mortgage professional about getting pre-approved for a loan.
If the loan amount that you are pre-approved for is not sufficient for your needs, you can continue to save money for a few months until enough funds have been saved.
Understanding typical mortgage closing costs can help you to prepare for your closing and budget for the purchase. As you progress through the financing process and review your mortgage document checklist, consider asking for a revised estimate of closing costs to ensure that the costs have not changed significantly during the loan application and underwriting process.
