3 Closing Costs That You Should Budget For Now
3 Closing Costs That You Should Budget For Now - Guide
When I tell you I wasn’t prepared to buy my first home, I really mean that I wasn't prepared for closing costs.
I thought I knew a little bit though. My aunt is an agent and my mom is an investor. However, I feel like they didn’t really give the game that I needed. I thought it was as simple as finding the home, putting in the offer, sending the down payment over and dancing into closing. However, it was AND is so much more. Everytime my agent told me about something new, I would always respond with “I have to pay for this too?” I’m sure she was over me but she is also a pro at working with first-time buyers and did a great job of breaking down and classifying all of these as closing costs.
What are closing costs?
The moral of the story is that there is much more that you need to save for when it comes to closing. These things are called closing costs, which are defined as fees associated with you obtaining financing (i.e. your loan) for your home.
How much do I need for closing costs?
This number will differ according to what and where you buy, but it’s recommended to have 3-5% saved.
Keep reading for 3 things that need to be included in your budget as you prepare to buy a home.
#1 Component of Closing Costs: Inspections
Inspections give you an overview of the status of the home. It ensures you, as the buyer, that your future home is structurally sound and in good enough shape to live in.
The biggest myth that I hear is that you only need one inspection. Lies! There are tons of different types of inspections and in some cases, you may need more than one. It really depends on where you’re buying, what type of home you’re buying (new construction vs. old model) and so much more. Take a listen to
Episode 8
where I invited Deandre of
Systemized Inspections
on to give a crash course on inspections. He is very knowledgeable and gave me a lot to think about as I prepare to purchase a multi-unit property.
How do inspections benefit me?
Inspections can also be used as negotiation tactics. If you find something that makes the home non-livable, both you and your agent can use that as leverage to knock the price down. Or, you can have the seller make the changes within the respective time frame. Learn more about time frames on the episode. They do exist when it comes to inspections.
#2 Component of Closing Costs: Title Search
Please don’t move into a home until you are sure that it’s owned free and clear by the seller. A title search gives you as the buyer a peace of mind. It officially confirms that the person selling the house actually owns it and that there are no unpaid liens against the property.
There are various types of liens but the most common one is a tax lien. This means that the seller is behind on property taxes and/or hasn’t been paying at all. This is not good for you or them.
How does doing a title search benefit me?
A title search confirms that the owner is indeed the owner and that they have kept up with payments associated with the home. This search is run through public records so that you aren’t just relying on what the seller or the seller’s agent is telling you.
Furthermore, once you become the owner, you will be responsible for the title and taxes associated with the property. This is where title insurance comes in, but we’ll talk about that in part two of this blog post.
#3 Component of Closing Costs: Appraisal fees
Appraisal fees are fees that you pay to an appraiser who will tell you how much your future home is worth.
You will definitely need one prior to buying but you’ll also probably get one again after you are in the home. The reason is because there are changes being made in the home, in the neighborhood and everything else in between.
How does an appraisal help me?
Prior to buying, an appraisal confirms that whatever the asking price is, matches the actual value with backed up research.
After living in the home, an appraisal can help you reassess the value to sell or to lower your property taxes. This usually comes into play when there are improvements to home and/or the community. Those improvements can help you in certain situations so you definitely want to be aware of them.
The bottom line:
Your home is an investment, whether it’s a primary residence or not. So don’t skip or try to be cheap with these fees. They can hurt you in the long run. If you want to learn more about how to prepare your finances for homeownership, join my free Homebuyer Goals Challenge. In 7 days, you’ll have a clear understanding of what your finances need to look like prior to your home purchase.
What are some of the “hidden” closing fees that you want to learn more about? Comment below!
