What Are The Hidden Costs Of Buying A Home
Are you looking to buy a home and you’re wondering what are closing costs and who pays for them? Well, that’s what we’re gonna be talking about today, and we’re gonna get started right after this.
Hello, and welcome back to my channel. I’m Ledeana Strand with Homes By Strand in Port Orchard, Washington, and today we’re gonna be discussing closing costs and what they mean to you as a buyer.
If you’re watching this video, you’re more than likely about to purchase a home and maybe you’re a first-time home buyer who’s about to purchase your first home and you just figured out what the concept of closing costs are and maybe you’re shocked and a little bit stunned.
I’m going to try to break it down and make the overarching concept a little less difficult to understand. So, closing costs in real estate are exactly the way they sound. You buy a home, you’re gonna have to pay above the actual purchase amount. So, an example may be if you paid $300,000 for a home, in order for that home to change hands or become yours, you’ll have to pay some costs associated with this.
Now, closing costs come in mainly two parts, and that’s going to be buyer closing costs and seller closing costs. Now, yes, the seller actually incurs a cost too along with the buyer. Now, who incurs more and who actually incurs what is going to depend mainly on your location and market conditions.
In the state of Washington, the main closing costs for the seller are real estate brokerage commissions. And the buyer cost associated with a piece of real estate is mainly going to come in the cost associated with obtaining a mortgage, taxes, insurance, appraisal fees, et cetera. Now, the best piece of advice I can give anybody if you want to figure out more accurately what closing costs are associated with buying a home in your area would be to ask a real estate agent or a lender. A good way to look at it is closing costs will typically account for 1% to 5% of the purchase price.
Now, many people don’t understand the why. Why are closing costs associated with buying a home and why are they so expensive? And more importantly, with things like Zillow, why do real estate agents and other people like this still exist? Well, on the surface a real estate transaction can seem very simple. But underneath it, there’s teams of people who are working 9-to-5 each day, even on the weekends, to make sure a real estate transaction closes and that there’s less risk involved. And people don’t like to work for free, so you actually have to pay these people. The other thing is that real estate is in partnership with many industries. Like I said, you have financing, you have real estate agents, title and escrow, inspectors, appraisers, et cetera.
When it comes to the actual mechanics of a house, it’s very difficult for one person in the transaction or a computer to know how to do all these things, so each one of these people must be separately paid.
I’m just gonna go over the most common closing costs associated with a real estate transaction, which side they’re typically assigned too, but not always, and just a general overview of what these parts of the closing costs actually do and how much you can expect them to be.
Now, one is going to be the real estate agent, and the real estate agent is going to typically be paid by the seller, but not always. Whenever you sell a piece of real estate, the biggest chunk of the costs that are going to come from the seller are going to be in brokerage commissions.
Now, this brings me to the second closing cost associated, which is going to be the loan. Now, the loan traditionally is going to be a buyer-paid expense because you are in fact the person who has to obtain the loan to purchase the property. Now, this expense can vary on a lender-by-lender basis. The biggest cost is going to be the actual fee associated with getting the loan and making sure that the house itself is in working order to actually obtain the loan. When you purchase a house with cash, you don’t have to do an appraisal, so the closing costs are going to be a lot lower.
Now, some mortgage companies charge a loan origination fee of 1% of the loan or more. In Washington State, we use title and escrow companies, so you’ll have their fees as well. Now, in other states, attorneys are used.
A title person’s going to be a very important person because you wanna make sure that the title to the property is unclouded, meaning it doesn’t have any liens or encroachments on the title. The title company is your best resource for that information. So, make sure that you get a good title company and make sure that you get title insurance for the property because title insurance is gonna help you fight off any people who claim to have any interest on the property. There’s gonna be other costs involved with actually inspecting the property.
When you’re about to purchase a home, it’s highly recommended to get a home inspection to make sure that it’s structurally sound and not in any need of major repairs. And lastly are appraisers. Most loans these days require you to get an appraisal in order to actually qualify for the loan, so that’s gonna be a closing cost as well.
There’s also prorations involved with closing costs as well. Also, if you have an HOA, the title and escrow company will prorate that HOA property fee. They’ll also prorate the insurance and property taxes down to the exact day to make sure that it’s fair and nobody paying any extra for any of those services.
People wonder when they’ll find out the exact figure for closing costs, and this comes in the way of a CD, or closing disclosure, from your lender.
Now, if you liked this video, you’ll wanna head over to a video I did a while back on earnest money and what it is. So, you just wanna click right up here to access it.
Now, people call me all the time. So, if you’d like to know more about how to get your closing costs paid for or rolled into your loan or thinking about moving here, give me a call or send me a text at 940-4039. I would love to have a conversation with you.
I hope you found this information helpful. And if you liked this video, give it a thumbs-up, comment below, share it with a friend. And before you leave, don’t forget to hit that ‘subscribe’ button so you don’t miss any future videos. Thank you for watching my video, and make it a great home-buying and selling day. I’ll see you on the next one.