An average home in the United States was available for a median price of $212,100 in March 2015. For first time homebuyers, that is a pretty big amount, especially because they do not have an existing property to fund the transaction. If you are not planning to faint upon receiving the good-faith estimate, it is must to educate yourself about the closing costs of the transaction. With a little research, you will get a better idea of where your money is going to be spent.
An earnest money deposit is made to reflect your commitment towards the transaction. You can expect to pay up to 2 percent of the overall purchase price as earnest money deposit. Keep in mind that the amount may vary from state to state and you might have to pay more in a sellers’ market.
If you are planning for less than 20% down payment, your lender will definitely ask for an escrow account. It is mandatory in case of FHA loans and an escrow account shows that you have sufficient money to cover taxes and other related costs.
Before purchasing a house, you need to order a home inspection, pest inspection, and even a radiation inspection. These inspections ensure that the house is safe to live. You can expect to pay up to $500 for home inspection and $150-$200 for a pest inspection. A radiation inspection is a costly one and you might have to pay several hundred dollars for it.
A real estate transaction should follow all the federal regulations and you need an expert home attorney for that. According to some states, you need an attorney at the time of closing whereas others have an optional ruling for the same.
Origination fee is the biggest expense after your earnest money deposit. Your loan officer or broker charges the money for processing the loan. It can cost up to 1% of the overall transaction cost.
If you have chosen a house in a flood-prone area, you need to take extra cover for that. An average flood insurance policy costs around $700 but it may vary from state to state.
Before purchasing the property, you have to ensure that the title of the house is free. It is best to hire a title company to do the job and you will have to cover their fees.
In addition to these seven closing costs, there are other expenses including appraisal cost, credit check, survey, title insurance, and notary fee. Having an idea of these costs will help you endure the pain of writing a check.