An important part of the homebuying sales process and sales contract is the closing costs. Few first time homebuyers realize that closing costs can be as much as 15 percent of the sales price and many lenders require you to pay for the closing costs upfront. 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.
Homebuyers have to keep in mind that lenders base their maximum loan amount not on the net price or the difference between sales price and closing costs but on the sales price of the property. Closing costs can be assigned differently and you can ask your Realtor and lender to assemble a deal that will work best with your budget.
The first step in understanding closing costs is to learn what buyers are typically responsible for. Barron’s ‘Smart Consumer’s Guide to Home Buying’ explains that it’s important to understand that custom – and not law – dictate how closing costs are allocated and what the buyer and seller are required to pay as part of 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. Some bankers will waive this fee for preferred customers or as part of your contract, but it’s important to get an accurate estimate of this as early as possible during your loan financing process.
Buyers also pay for the insurance premium of the homeowner’s title. Buyers usually have to pay the premium first before proceeding with a formal home buying agreement. It is advisable to pay for this upfront so that you won’t have to include this cost in your loan package. Look for the best homeowner’s insurance policy rates and deals as the premium varies between each insurance company.
The following costs are usually the responsibility of the seller. Commissions on sales – commissions are given to agents of both the buyer and seller. Commission payouts are set depending on the buyer’s and seller’s agreements with their respective agents.
Inspection Costs – the costs of termite inspections and other testing required for the home before the purchase can be completed are assumed by the seller.
Title’s insurance – Insurance on the title are traditionally shouldered by the seller as part of closing costs. Many first time homebuyers incorrectly assume that they need to take care of these costs.
Calculating closing costs can give homebuyers a good estimation of the property’s price before the closing date. Try asking your lender for help as many are willing to rundown these costs when applying for a loan.
Looking for MN Homes for sale? An excellent resource for searching properties online is the Minnesota MLS, which enables you to search by price, neighborhood and many other criteria.