The 411 on Budgeting Closing Costs

There are several costs associated with buying a home. You’re probably prepared for earnest money, down payment and appraisal fee. But have you budgeted for closing costs?

Keep reading to learn what’s included in closing costs, when you pay them, and how to ensure you have the money to handle them.

What’s Included in Closing Costs?

When you’re at the closing table, you’ll be required to pay certain costs before you can take ownership of the property. Some loan programs allow you to roll closing costs into the loan, which makes it easier to manage. Some, however, require you to pay these costs upfront.

Closing costs include:

• Appraisal Fee
  An appraisal will look at the property, compare it to area comps, and assign it a value. This helps lenders (and you) know the home is worth the price.
• Credit Report Fee
  Pulling your credit report to determine your creditworthiness is one of the first things lenders do during the approval process. The fee will be passed on to you at closing.
• Title Fees
  Title and tax service fees ensure the property can be clearly transferred to you.
• Lender Origination Fees
  This fee is what your lender gets paid for the transaction.
• Underwriting Fees
  Getting the loan approved and all the paperwork ready is covered under this fee.
• Discount Points
  If you’re paying points to help decrease your interest rate, they’re due at closing.
• Escrow Fees
  The property taxes and homeowners insurance payments must be set aside to be paid when due. Part of your monthly mortgage payment will be held in escrow and paid by the lender at that time. You’ll need to pay a portion of these fees at closing.
• Additional Fees
  Sometimes there will be other fees and costs.

Keep in mind that closing costs do not include your down payment. That’s a separate cost you’ll need to be ready for.

When Do You Pay Closing Costs?

There are some costs associated with your loan that you may need to pay before closing, but they’re still considered closing costs. For closing costs you haven’t already paid and that aren’t rolled into the loan, you’ll need to pay them at the closing table.

How Can You Be Sure to Have the Money for Closing Costs?

Since closing costs can add up to a significant amount of money, you should proactively plan how you’ll pay them. Here are some ideas for covering your closing costs.

• Ask your loan officer to estimate your closing costs.
  The earlier in the purchasing process you’re aware of closing costs, the easier it will be to pay them. When you’re discussing your loan, ask you lender to estimate your costs. They may not be able to give you an exact figure, but they’ll come up with a close number to prepare for.
• Ramp up your savings.
  As you’re looking for a home, cut out all unnecessary spending and sock the savings away in a closing cost fund. When the time comes, you can use that money to pay them.
• Negotiate with the seller.
  If you think you’ll be short on closing costs, ask the seller to pay a portion of them. Depending on the other concessions and their eagerness to sell their home, they may agree to do it. This lowers the financial burden for you.
• Use some of your down payment.
  If you’ve saved a healthy amount to pay down, consider shaving some off to use as closing costs.
• Get a family member to gift you the closing costs.
  If you have a parent, sibling or child willing to give you the money for your closing costs, congrats! This is a great and stress-free option for covering the costs. Most conventional loans allow gifts to be used as closing costs if they’re from close family members. Keep in mind that gifts from cousins, nieces, nephews and friends are sometimes not permitted.

You should plan for your closing costs as soon as you start thinking about buying a house. Don’t however, let the cost deter you from your homeownership dreams. Your mortgage lender will be able to advise you of the best options for covering them, so you can get into the home you want.