Many prospective home buyers wonder, “What Are The Buyers Closing Costs When Purchasing A Home?” It’s valid to wonder about closing costs because they are hard to pin down and can vary from transaction to transaction.
Using one of my recent sales as a point of comparison, I will walk you through some hypothetical buyers closing costs for a $580,000 starter home in Shoreline, WA.
Thinking About Buying A Home, But Not Sure How Much The Buyers Closing Costs Will Run?
Are you thinking about buying a home but wondering how much cash you’ll have to come up with – between the down payment and the buyers closing costs, some people worry they’ll NEVER be able to save up enough money. Plus… sometimes it seems like the more you save, the more housing prices go up and you feel like you’re losing ground.
Today, we’ll discuss closing costs and how much “extra” you need to close on your home purchase.
A Good Real Estate Advisor Can Help You Understand Actual Facts and Figures For Your Own Transaction
I’m Emily Cressey and I got started investing in real estate right out of college. Since then, I’ve bought, sold, and leased millions of dollars of residential and commercial property. As a Seattle area real estate broker, I’m here to help you make your next real estate transaction easy and profitable.
So What Costs Are Included In Closing Costs?
Now, when it comes to closing costs, everyone always wonders because it can be a little amorphous – the amount you’ll have to pay changes depending on WHEN you close. Let’s take a look at what’s actually covered, and what the price range might be.
Property Taxes: You’ll have to pay taxes for the days you stay in the property. Typically the property owner will pay these in advance, and they’re due every six months. So, if you close at the end of the year and are only paying for a few days of taxes, this might be a relatively low figure – a few hundred bucks. If you’re paying at the beginning of a tax year, you may have to pay more. As a ballpark, a starter home in Shoreline might have a tax bill around $6,000 per year, so your cost for taxes would be about $500/month. Your lender may require you to pre-pay some of the next year’s taxes at the time of closing. Let’s say you pre-pay half a year’s taxes, that’s $3,000.
Property Hazard Insurance: The second thing to think about when you’re paying closing costs is Property Insurance/Hazard Insurance. Every home needs to be insured if you’re buying with a bank loan, so plan to pre-pay your first year of insurance at closing. What your insurer charges will depend on the home and all sorts of things, but for our hypothetical starter home in Shoreline, let’s say $1,000.
Lender Fees: Then, there are all sorts of lender fees. So those will depend on the lender you work with. You’ll always have to pay an appraisal, around $800; and pre-paid interest for your first month of the loan, and points or fees that go to the lender as their earnings on the front-end. $5,000 is probably a good placeholder for this.
Title Insurance: Also to protect the lender, yo have title insurance. The buyer must pay for their lender’s title insurance. This may be $1000 bucks or so, as well.
Closing Officers: Finally, you have the fees to the closing company, this includes the people who organize the closing, record the documents, and government fees for transfer. This will run you around $1500.
Grand Total? So, what does that all come out to? For my hypothetical starter home in shoreline, priced at $580,000, that brings us to about $11,500. Remember, these are just estimates, and you’ll need to talk to a lender to get a more specific figure.
Yes, You Really Can Buy A Home!
I recently had some buyers purchase a home at a similar price point with a VA loan, in Shoreline, WA, which is a no money down loan. These figures are roughly based on the buyers closing costs on their statement. While they didn’t need to come up with a “down payment,” for the loan, they did need about $12,500 cash to bring to the closing table for their buyers closing costs.
So How Much Cash Do You Ultimately Need To Buy A House?
So, while you don’t need to necessarily have a full 20% of the purchase price available as a down payment (in fact, there are a lot of reduced down payment programs, no down payment, and even down payment grant programs ), depending on your loan you may want to use 3%, 5%, 10% 15% or 20% (or more) of the total value of the home as a down payment on the purchase. However, it is still important to have some money in the bank to cover your buyers closing costs and not be down to your last dollar. Look into FHA or VA loans for more information about these two popular low-money-down home buyer programs.
Home Ownership May Be Closer Than You Think
The point is, home ownership may be closer than you think. The best way to get a clear handle on what your payments will be, and how much cash you’ll need up front is to get in touch with a lender. We work with a few excellent lenders we’ve selected, and we are always happy to make a recommendation to someone who will offer you excellent service. (Contact us for current lender recommendations.)
We want you to be able to take the next steps to go from dreaming, to planning, to action.
Wherever you are on that spectrum, we are here to help. When we talk, we’ll ask you a few pertinent questions to get to know you and understand your dreams, goals and timeline and you can work with a trusted advisor all along the way.
As A Buyer – You Do Not Pay Out Of Pocket For your Real Estate Agent’s Commission
As a buyer, remember that the seller pays our real estate agent commission so there is no fee, no upfront cost (or any cost, really) to work with us. We don’t get paid unless you reach your goal. The home seller pays real estate commissions to your agent and theirs upon the sale of the home.
Typically a 6% commission (or whatever the seller has agreed to pay) is paid out of the seller’s proceeds at closing…half to the seller’s broker’s company and half to the buyer’s broker’s company, and after expenses, a portion of that makes its way to the individual representatives working in the transaction.
Our goal is to make sure YOU are thrilled with your home buying experience. We strive to offer 5-star service to every client.
Reach Out For A No-Obligation Consultation
No matter where you are in your home buying journey, we are ready to advise you and answer your questions so you feel prepared to take the next steps.
Whether you’re ready to buy, or are years out and just starting to dream, we are happy to help. If you just want a better understanding of the costs, the logistics, how much money you need, what you can afford, or what neighborhoods are best, let us know. Fill out this form, and I will be more than happy to walk you through the process.
I’m Emily Cressey owner of the HomePro Team at HomeSmart.
For more information on buyers closing costs and other first time home buyer topics of interest, be sure to check out our informational videos on our YouTube Channel – Home Pro Associates – we’re always here to help.