Why no one is telling me how much the closing cost will be?
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[Tip for First-Time Homebuyers: Closing Cost Mystery Solved!] 😀
Tip for First-Time Homebuyers: Closing Cost Mystery Solved!
Congratulations! You've found your dream home and are on your way to becoming a homeowner.
But amidst the excitement, a question might be looming: how much will closing costs be?
Unlike the house price, closing costs can feel shrouded in mystery. They can vary depending on several factors, making it difficult to get a precise number upfront. But fear not, future homeowner! This blog post will shed light on closing costs and equip you with the knowledge to navigate them effectively.
The 2-4% Rule of Thumb ✍️ Closing Cost
Let's start with a ballpark figure. Closing costs typically range from 2-4% of the purchase price of your new home. Take a moment to write this down as a starting point for your budgeting.
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Why Closing Costs Fluctuate
While the 2-4% range provides a helpful starting point, there are reasons why the actual cost can differ:
Taxes: Closing costs include prorated property taxes, meaning you'll pay a portion of the year's property tax based on the days you'll own the home after closing. Additionally, some states have transfer taxes, which are levied on the sale of real estate. These taxes can impact the final closing cost amount.
Loan Fees: Your lender will charge various fees, including origination fees, underwriting fees, and document preparation fees. These fees can vary depending on your loan type, credit score, and lender.
Title Fees: Title fees cover the cost of a title search, which ensures the property has a clear title, and title insurance, which protects you from any ownership claims arising after purchase. These fees can differ based on the property's location and value.
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Beyond the Estimate: Getting a Loan Estimate (LE)
Remember, the 2-4% range is a very rough estimate. To get a more personalized idea of your closing costs, obtain a Loan Estimate (LE) from your lender. The LE is a federally mandated document that outlines the estimated closing costs associated with your specific loan scenario. This will provide a clearer picture of the actual costs you'll incur.
By understanding closing costs and obtaining a Loan Estimate, you can budget effectively and approach closing with confidence.
Happy Homebuying!
