Personal Finance Advice

Most people already know to save up money for a down payment when the time comes to buy a home.  Indeed, the amount of your down payment can have a huge influence on the amount of money you can get approved for with a mortgage.  One thing that far too many people forget about, however, is the inevitable closing costs that come with purchasing a home.  When you’re readying your personal finances for a home purchase don’t forget to take into consideration the closing costs.

What are closing costs? These are fees charged by the state, county, and city as well as the costs of the loan to the mortgage lender and the title company or attorney.  You’ll commonly encounter closing costs such as:

Taxes

Documentation fees

Title searches

Credit check

Appraisal fees

Some mortgage lenders pile on the closing costs in an attempt to make the highest amount of profit possible.  Shady lenders tack on so-called junk fees that plenty of borrowers don’t ever bother to question or even look at.  Either way, there will always be some form of closing costs associated with a new mortgage.  Even mortgage companies that claim to offer No Closing Costs Mortgage Loans usually simply roll the costs of the closing costs into the loan.  This means that instead of merely financing the cost of the home, you’re also financing the costs associated with closing the loan.

Do you want to finance these costs over the life of the loan, or would you rather pay them outright and not wind up paying interest on closing costs?

The amount of your closing costs depends on a few factors.  The monetary amount of your mortgage has a huge impact on the amount of closing costs you’ll pay.  The location of the home will also influence the closing costs because some areas of the country are more expensive than others to close in.

So what does this all mean for your personal finances? It means that when you are getting ready to buy a house you need to set some money aside for closing costs.  Some new borrowers don’t understand this, and they wind up rudely surprised when they suddenly discover that they have to fork over thousands of dollars for closing costs.  You’ll receive a closing costs estimate when you apply for a mortgage, but you can ask your mortgage consultant for a more accurate closing costs estimate once your loan gets nearer to the closing date. 

Or, of course, you could always request that the seller pays the closing costs so you don’t even have to worry about pulling the money together.