The homebuying process unfolds over a series of steps. It typically begins with applying for a mortgage, followed by the house hunt, and upon finding a place, beginning to pay for it. This is the part that can cause confusion for many people.
Closing costs may be the biggest riddle of them all. Questions run the gamut: What are they? Who pays closing costs when buying a house? Can closing costs be rolled into a mortgage? Are they separate from the price of the property itself?
Understanding home closing costs is a core element to homeownership. The following should help provide you with some clarity:
What are closing costs?
Appropriately titled, closing costs relate to the various fees and expenses that get paid at the conclusion of a residential real estate transaction. Closing costs serve as an umbrella term because there are several, such as paying to have the house appraised and/or inspected, application fees, courier fees and attorneys fees. Similar to homes themselves, closing costs vary and are largely dependent on the type of loan obtained and the size of the down payment. For instance, many people buy private mortgage insurance (PMI), which lenders may require as a security. An initial payment may be required at closing. However, if your down payment is 20 percent or more of the purchase price or house’s value, you may not need a PMI policy.
Who pays for closing costs?
Generally speaking, the buyer is the one who pays for closing costs, but this may not always be the case. As noted by The Balance, the buyer and seller may decide during negotiations who pays for what as a way to make an offer more attractive. The costs that each party assumes in a transaction are largely a function of market dynamics of the moment. If it’s a buyer’s market, sellers may be more willing to pay for additional expenses to help ensure the deal goes forward. The opposite may be the case in a seller’s market.
How much money is spent on closing costs?
The total amount due varies depending upon the situation. According to Zillow, between 2 and 5 percent of the purchase price derives from closing costs. If you’re interested in paying off your loan as soon as possible, this is good news, because what you spend at closing goes toward paying down how much you owe. On average, the total is roughly $3,700, Zillow reported.
Transparency is crucial to the homebuying process, which is why here at Kentucky Bank, we’re not just a lender, we’re a partner. You can rely on us to guide you every step of the way so you know what to expect from the moment you apply for a mortgage, all the way to the closing table.
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