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Buyer Closing Costs: The Basics

What are buyer closing costs?

Another term I didn’t know before beginning our home search was “closing costs.” Closing costs means more money that you have to scrounge up to buy a home on top of the down payment.   This term will come up when you are looking for a loan or making an offer on a home.   There are several decisions you can make regarding how you pay your closing costs.

What is included in buyer closing costs?

There are several different fees and charges that makeup buyer closing costs.  The fees will all be listed on your Buyers/Borrowers Closing Statement, and you can ask any remaining questions during closing.  From experience, the closing meeting is kind of a whirlwind because there are so many documents to sign and discuss, so we went through it line by line with our buyer’s agent before the meeting.

  • New loan charges
  • Appraisal Fees
  • Credit Report Fee
  • Interest on loan
  • Home Owner’s insurance (1 year upfront)
  • Property Taxes (1 year upfront)
  • Closing Fee to Title Company
  • Title Charges (owner and lenders policy)
  • Water Transfer Fees

Our exclusive buyer’s agent was able to give us a rough estimate of the closing costs before we made an offer on the home.  That way, we could budget appropriately.

Most of these fees and charges cannot be reduced, but, you can shop around for home insurance and this can make a big difference in your closing costs.

When are buyer closing costs paid?

Buyer closings costs are paid at the closing meeting.  They will be included as a lump sum along with your down payment.

There are two different ways to pay your closing costs.

You can pay your own closing costs, or you can ask the seller to pay them.  You will make this decision when you make an offer on a home.

If you ask the seller to pay closing costs it generally increases the sale price of the home by the same amount.  For example, you could offer $210,000 on a home and pay your own closing costs of approximately $5,000.  Or, you can offer $215,000 on the same home, and ask the seller to pay your closing costs.

There are pros and cons to both options.

Seller Pays: The upside to this is that you will not have to have the cash for the closing costs at your closing meeting.   The downside is, generally you make a higher offer on the home, and then the seller pays closing costs.   This means that basically you will be paying interest on your closing costs.

Buyer Pays: The upside to this option is that if you pay the closing costs yourself in “cash”, you will not pay interest on closing costs.  The downside is, you will need to budget for these costs along with costs to move, any repairs that need to be made to the home before moving in, and down payment.

We discussed the ins and outs of our situation with our agent to decide the best course of action for us.  In the end, we decided that we would look for homes in a price range that we could pay our own closing costs.

To find out more information about closing costs, get connected with one of our exclusive buyer’s agents.