Tips for Home Buying
Understanding Closing Costs

Purchasing a new home and finding a great deal heavily involve aother aspect known as closing costs. Very few beginning homebuyers understand that closing costs may be as high as 15 percent of the selling price, and most lenders will ask you to directly pay for it. While some lenders can roll the closing costs into the loan package, knowing what these are ahead of time may help you plan your budget better and even negotiate down the final price so that you can afford the total closing costs as part of the deal.

It’s important to remember that the maximum loan amount offered by the lender is based on the sales price and not the net price (sales price minus closing costs) paid by the buyer. Closing costs are allocated in several different ways, and you can work with your realtor and lender to arrange the best possible plan with your available funds and stay within your budget.

The first step in understanding closing costs is to learn what buyers are typically responsible for. Barron, the author of 'Smart Consumer's Guide to Home Buying', points to the significance of knowing that it is not the law but custom that prescribes the allocation of closing costs and the responsibilities of both the buyer and seller as stipulated in the contract.

The buyer is typically responsible for all fees and discount points of the loan. These are often added at the end of the contract by the lender, and vary significantly by financial institution.In most cases, bankers will forgo this fee as part of your contract or waived for valued customers, however it is a must to know the precise estimate as early as the start of the loan financing process.

Buyers are also responsible for paying the premium of the home owner’s title insurance policy; in most cases, they will need to pay for this before the home purchasing process can even begin.Since the premium cost depends on the insurance company you may want to work with, the availability of extra cash can be a great idea as far as paying the premium is concerned that it may not get rolled into the loan. It helps to shop around, so do some research about homeowner’s insurance policy rates and options before signing any contract.

Most of the time, these costs form part of the seller's obligation. Depending on the agent, sales commissions or the fees allocated to the buyer's and seller's agents, may vary accordingly.

Inspection Costs - the expense of having the various inspections and the other inspections required for homes before they are purchased, are covered by the home-seller.

Title Insurance - this is a common oversight by many first time homebuyers because many assume that they will need to take care of any costs associated with the title company.Most of the time, the costs for title-insurance are included as a cost at closing and are the seller's responsibility.

Understanding the breakdown of closing costs can give you a more accurate overview of what the final price will be at signing.Early in the loan financing process, lenders can give you an estimate and may discuss with you the fees that you'll be paying, discount points, and all other concerns related to your loan.

by Alexandria P. Anderson - 03-21-2009

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