A First Time Home Buyer Guide to Closing Costs

By Alvaro Moreira
6 min read

A First Time Home Buyer Guide to Closing Costs

You may have heard the horror stories from your homeowner friends. Right when your home purchase is buttoned up, high closing costs come out of nowhere. 

In 2020, the national average for closing costs for a single-family home was $6,044. Unfortunately, the rates will increase as home prices rise. 

Yes, closing costs are usually unavoidable. But there are ways to anticipate how much you’ll pay and get assistance if the fees threaten to eat into your budget. 

As a first time home buyer, knowledge is your best friend. That’s why we’ve created this guide to help you understand closing costs and learn how to get the assistance you need. 

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Closing Costs Defined

Closing costs are fees associated with buying a home. You’re not handed a bill with a grand total – they come from separate sources. These costs have nothing to do with your down payment, so you’ll need to consider them when deciding how much you can afford to put down on a home. 

Here’s a look at the most common closing costs. 

Loan Origination Fees 

These are administrative fees that go to the lender for underwriting and processing your loan. They’re typically between 1% and 2% of the total mortgage. The underwriting process involves the lender running a check to ensure you’re financially stable enough to pay back the loan. 

Home Inspection Fee

Getting a home inspection may not be required, but it’s a smart move for any first time home buyer. The inspector will examine the foundation, plumbing, HVAC system, roof, and other critical elements. Inspectors typically charge between $350 and $450. 

Appraisal Fee 

Paying to have a house appraised is the best way to determine if it’s listed at a fair market value. An appraiser will consider the condition of the home, its location, age, size, and any renovations or upgrades. Expect to pay between $350 and $500 for this service. 

Private Mortgage Insurance 

If your down payment is under 20% of the home price, you may be required to get private mortgage insurance. This type of insurance is a condition of a mortgage that protects the lender if you can’t repay your loan. 

Title Search and Title Insurance 

The title of the home you want to buy needs to be clean, meaning it doesn’t have liens, judgments, or public record errors attached to it. Hiring a title company to perform this search is highly recommended. You’ll also need title insurance, which protects you and the lender from title issues like fraud or omissions. 

Attorney Fees

A real estate attorney needs to complete the closing transaction. This includes preparing and reviewing all the documents that will need to be signed at the closing. They may even need to be present during the final transaction. 

Get a Bead on How Much You’ll Pay

Closing costs can be between 3% and 6% of your total mortgage loan. That’s a big chunk of change for a first time home buyer. But don’t let that intimidate you – buying property is a long–term investment and closing costs are just a small financial hurdle. 

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The good news is you don’t have to get caught off guard by closing fees. With a little work, you can estimate how much you’ll pay. 

Here are some tips to get started. 

  • Closing fees vary based on location; look into closing cost averages in your state. 
  • Get estimates from local appraisers and inspectors before hiring them.  
  • Consult your real estate agent for a clearer cost picture. 
  • Get the loan estimate from your mortgage lender and review estimated closing costs. 
  • Determine whether you’ll need to pay property tax upfront and factor this into the fees. 

Even a ballpark figure will put your mind at ease so you can focus on other aspects of the homebuying process. It’ll also allow you to take a look at your budget and do some smart financial planning. 

A Little Negotiation Can’t Hurt 

As a first time home buyer, you may be hesitant to haggle to save a little cash. After all, you’re in unfamiliar waters. However, negotiation can be a simple way to bring your closing costs down. 

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Keep in mind that some of the fees are non-negotiable. But there are areas where you may find some wiggle room. 

Negotiating with the seller is an option. If they’re eager to make a quick sale, they may agree to cover some of your closing costs to sweeten the deal. You should also negotiate with the seller if the inspection reveals issues with the home. Having them pay for repairs or reduce the sales prices defrays the expense of the closing costs. 

It’s also worth talking to your mortgage lender to see if they’ll reduce some of the fees attached to the closing. They may even waive some, especially if you have a solid credit score. There’s no guarantee this will happen, but it doesn’t hurt to ask. If your lender can’t decrease your closing costs, they may be able to roll some of the fees into your loan. 

Closing Cost Assistance for the First Time Home Buyer

Consider this scenario. You’re about to seal the deal on your first home, but the closing costs have thrown a wrench into your budget. You’ve negotiated what you can, but the fees are still a major stressor. It’s time to look into closing cost assistance. 

There are plenty of strategies out there that will make getting into your first home easier. You just need to find the one that’s right for you. 

Lender Credits

Many mortgage lenders offer credits that work to reduce or eliminate your closing fees. In exchange, you’ll receive a slightly higher interest rate on your loan. 

New Construction Credits 

If you buy a new home in an approved development area, you may be eligible for a builder credit. These programs provide incentives to home buyers as a way to stimulate growth in certain neighborhoods. You may be eligible for up to $10,000 in assistance. 

Grants 

If you’re a first time home buyer with low to moderate income, you may qualify for a grant from your state or local government. These grants help reduce closing costs and can also be used for a down payment. 

Gift Funds

Many conventional mortgage loans allow the buyers to use gift funds to help with closing costs. These gifts must come from a family member and be accompanied by a letter that states the money is being given as a gift and not a personal loan.  

Get Expert Help With a Closing Cost Assistance Plan

At The Moreira Team, we understand the financial stress that comes with being a first time home buyer. It’s our goal to make the process as easy as possible. 

Closing costs can put a damper on your financial plans and lead to panic right at the end – but there’s a light at the end of the tunnel. We provide expert guidance, resources, and personalized mortgage options to help make your dream home a reality. 

Use our closing cost calculator to get an estimate of what you can expect to pay. Then, contact us to discuss a smart strategy for securing the assistance you need.