What are Closing Costs?

In this article

1. What Are Some Other Costs to Consider Besides the Closing Costs?
2. Why Do You Need a Down Payment?
3. Why the Lender Requires a Home Appraisal?
4. Why do You Need a Home Inspection?
5. What are the Closing Cost Fees?
6. Why do I Need Home Insurance?
7. Pro Tip: How to Pay Your Mortgage Off Sooner

When you decide to buy or refinance a home you will most likely have to pay closing costs. Closing costs are comprised of the fees that are paid to the service providers of the mortgage process. Closing costs are generally around 3% to 5% of the loan amount. Closing costs can include mortgage fees, attorney fees, and property appraisals. There are no set closing costs or even amounts to what is charged, so make sure to ask your mortgage provider what they are and if they can be negotiated. Another thing to be aware of is that you can even negotiate who pays the closing costs.

Once you have solidified an offer on a home, The Moreira Team will work with you to figure out your closing costs, how much they will be and who will pay them.

What Are Some Other Costs to Consider Besides the Closing Costs?

Why Do You Need a Down Payment?

The minimum down payment you need is 3.5% and this is specific to a Government loan type called a FHA loan. The average down payment is usually 5%. The goal here is to put down as much as you can without effecting your debt to income ratio or your ability to make your monthly mortgage payments.

Read more about Down Payments

Why the Lender Requires a Home Appraisal?

The lender will schedule an appointment with the seller’s agent to have a qualified lender approved home appraiser determine the value of the home you want to purchase. As long as the appraiser deems that the value of the home matches up with your offer the mortgage loan will move forward to the underwriter stage for approval. If issues come up where the value is lower than the sales price you will need to decide if you want to negotiate with the seller to lower the sales price. Your realtor will be able to you assist you if this comes up.

Read more about Home Appraisal

Why do You Need a Home Inspection?

Hidden major defects in a home can add up to thousands of dollars in repairs. If you are investing $250,000 in a home why not invest $300-$500 in a professional home inspection to uncover any serious issues that could be overlooked like a cracked foundation, mold issues, termites, leaky roof. It can go on and on. If you get an inspection the home inspector will photograph any structural, electrical, plumbing & heating issues that could impact the cost of your home. Catch it early and you avoid getting into a problem house and perhaps you loss $500 and avoid a major financial problem. If the issues are manageable you could negotiate a conditional offer with the seller that could save you thousands.

Read more about Home Inspection

What are the Closing Cost Fees?

Expect to set aside 3% to 5% of the value of the mortgage to cover the closing costs. Your realtor in most cases will negotiate all or at least a portion of your closings costs to be covered by the seller. If your refinancing, your closing final costs can be financed into the new loan so you can eliminate or significantly reduce any out of pocket expense you might incur. Be sure to check with your mortgage advisor on your closing cost options so you don’t run into any surprises when you are ready to close.

Why do I Need Home Insurance?

Your lender requires you the homeowner to properly insure your home against fire, theft and damages for the amount of your mortgage and valuables. This insures that the lender is covered should your home be a total loss or sustain serious damage. It also cover you so that you can replace valuables and rebuild should a serious issue happen to your home.

Pro Tip: How to Pay Your Mortgage Off Sooner

These days lenders have lots of options to make accelerated payments on your mortgage without penalties. The goal here is to get to home ownership sooner so you can enjoy your life without the constraints of mortgage payments.

A simple change to your payment frequency from monthly to bi-weekly can save you a full mortgage payment a year that can shave a few years off your mortgage.