There are a variety of things that need to be taken into consideration for those who are setting out to obtain their first mortgage. One of the most confusing aspects for many people who are dealing with this scenario is understanding closing costs. You will be responsible, when receiving a new mortgage, for paying fees that are associated with finalizing the mortgage. This takes many people by surprise, and the costs can really add up if you take out a mortgage on an expensive home. Gaining a thorough understanding of closing costs is the best way to prepare yourself, and it’s not as confusing as you might think.
Charges associated with closing fees
The first step to understanding closing costs is gaining a solid idea of which fees are typically associated with these costs. Fees can range from running your credit report to an escrow deposit. You will need to pay a loan origination fee, attorney fees, appraisal/survey fees and title insurance.
In addition, recording and underwriting fees usually apply. There is always variation, depending upon your circumstances, in closing costs. If you have an idea of what to expect, however, it will no doubt lessen the blow.
How much is it going to cost you?
For most people, the first question related to closing fees is how much these will actually cost. While it should certainly be expected that closing fees for one person won’t be the same as the next, you can expect to spend anywhere between two and five percent of the total cost of purchasing the home.
If the cost of your home hovers around $300,000, for example, you’ll most likely pay between $6,000 and $15,000 in closing fees. As the price of your home rises, so too will the fees associated with closing. By law, a lender is required to provide you with a good faith estimate within three days of applying for a loan, which should give you a much better idea of how much you will end up spending on closing fees.
The one reason why so many people find paying closing costs to be difficult is because they simply don’t expect them. It’s important to remember, when you are budgeting and saving for your mortgage, to factor in these costs at the same time. In this way you’ll be able to gain a thorough understanding of how much you’ll have to pay with all the expenses included in the final price. Set aside a nest egg that will cover the costs of closing on your mortgage, and whatever you do, don’t touch it! For best results, you should consider working with a good accountant as part of a comprehensive financial strategy.
Avoiding closing costs
While keeping closing costs at bay can sometimes be easier said than done, you can do so by applying for a “no closing cost mortgage.” They’re not always easy to find, but they do exist. Bear in mind, however, that the lender may end up charging you a higher interest rate than normal for such a mortgage. For this reason alone, you may end up spending just as much for the mortgage as you might if you were to pay the closing costs in full. If you do encounter a mortgage that has no associated closing costs, it’s important to read the fine print as closely as possible. Many people get themselves involved in situations that end up costing them quite a bit of money without even knowing it.
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