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A Breakdown of Closing Costs

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Closing costs are something that both sellers and buyers have to deal with, but many individuals do not understand everything that is behind the closing costs. Buyers are usually responsible for closing costs, but some circumstances – such as specific loans and purchasing agreements – can leave the sellers responsible for closing costs. These costs are generally due at the time the home is purchased and can add anywhere from 2 to 5 percent of the cost of the home onto the mortgage. Lenders are generally able to estimate the closing costs and must let the buyers know what the closing costs will be within three days of the processing of the loan.

What is included in closing costs?

Depending on the area you are in and the type of home you are purchasing, the closing costs can be made up of various factors. Generally, closing costs include the cost for processing the loan, title insurance, appraisal fees, fees associated with the title search, and the recording fee. Closing costs are basically any cost that the lender has to pay upfront in order for the home to be mortgaged by a buyer. These costs can often be added to the term of the loan, but buyers are often responsible for paying the closing costs when they pay their initial deposit on the home.

Special Deals

Some lenders run promotional mortgage specials that allow home buyers to close on a home with little to no closing costs. These mortgages may look attractive to home buyers, but they should always be aware of the final cost of the loan. When lenders offer these types of loans, the buyer will end up paying less upfront, but will pay more for their home in the long run. Lenders are able to offer these special types of mortgages by charging the home buyers a larger rate of interest.

Negotiating

Buyers can also avoid closing costs by negotiating a deal with the seller. The buyer may be willing to pay more for the home or will deal with necessary repairs if the seller is able to pay the closing costs. Since closing costs can be expensive and sellers often do not want to deal with the cost of selling their home, this is a rare situation. More commonly, sellers will be willing to split the closing costs of the home in exchange for repairs being done or a higher price paid on the home. This allows the buyer to pay lower interest costs because the cost of closing is not added to the mortgage.

Buying a home has many hidden costs that are not associated with the actual home or with the interest that is on the home. It is important to look at the various closing costs in your area and talk to your lender about what the estimate of your closing costs will be. Knowing the closing costs for the mortgage will help you be better able to negotiate a deal on the home when you are making your purchase.