What Are Closing Costs for When Buying a Home? | Cleveland Bradley County Teachers’ Federal Credit Union

If you are in the process of buying a home, or are thinking it may be a step you would like to take in the next few years, you are likely already inundated with thoughts about the biggest factor in your search: the budget. While buying a house is a fantastic investment, it is also a major expense.

Oftentimes, a mortgage will be cheaper than renting, but you have many more upfront costs as a home buyer that can temporarily offset the savings.

There is a lot of attention devoted to the down payment, as it is one of the biggest upfront expenses that many people will make in their lifetime. However, in addition to the down payment, there are also closing costs to consider—and while these are small in comparison to the overall cost of the house, if you are not prepared for them, they can come as quite a shock to your savings account.

What Are Closing Costs?

Essentially, closing costs are used to cover the cost of actually doing the real estate transaction. These costs are separate from the cost of the house, and will cover fees such as loan origination fees, appraisal costs, title insurance, title searches, deed reporting fees and credit report charges.

Typically, closing costs range from around 2 to 5% of the purchase price of the home.

Who Pays for Closing Costs When I Buy a Home?

Historically, potential buyers would ask the seller to cover some or all of the closing costs as part of their offer to buy the home. However, as the real estate market across the country has gotten more competitive, some buyers are now choosing to absorb some or all of the closing costs in order to submit an offer that is more competitive.

How Do I Budget for Closing Costs?

Because closing costs are dependent on many factors, they can be intimidating to budget for. However, if you know your overall budget for a home, that is a great place to start.

It is best to calculate on the high end so there are no surprises, so plan on your closing costs being 5% of the asking price of any home you are considering. That way you can calculate your down payment, other upfront costs like insurance and the closing costs at the same time, so you can be certain that you know exactly how much cash you will be spending as part of your transaction.

If you need help with a mortgage or budgeting to buy a home, we’re here to be a resource! Contact us today for information about our services.