Congratulations on your decision to purchase a home! As a first-time homebuyer, you might feel both excited and anxious about the entire home buying process. One of the most pivotal moments of your homebuying experience will be closing day. This is when the property officially becomes yours. But what exactly does closing entail and how do you prepare for it? Let's dive in.
Understanding closing costs
Closing costs are the expenses, over and above the price of the property, that buyers and sellers usually incur to complete a real estate transaction. They include a wide range of fees like title searches, property inspections, and mortgage application fees.
Typically, homebuyers can expect to pay between 2% and 5% of the purchase price of their home in closing fees. For instance, if your home costs $200,000, you might pay between $4,000 and $10,000 in closing costs. However, these figures can vary based on where you live and the complexity of the transaction.
What is included in closing costs?
Here's a breakdown of some common items:
- Loan origination fee: The cost for the lender to process your mortgage.
- Appraisal fee: Paid to the appraisal company to confirm the fair market value of the home.
- Title search fee: A fee charged to ensure there are no liens on the property
- Escrow deposit: At least 15 months of insurance paid at closing; first year’s insurance premium plus three months’ worth for escrow
- Recording fees: Paid to the county or city to record your deed
- Home inspection fees: To ensure there aren't any hidden problems with the home
- Underwriting fee: For evaluating and verifying your loan application.
The home closing process
- Secure Financing: Before the closing process begins, make sure you have a mortgage offer in hand. This means applying for a mortgage, getting approved*, and finally securing a loan.
- Property Appraisal and Inspection: Once you have financing, your lender will order a property appraisal to ensure the home’s value matches the sale price. This is also when you should schedule a home inspection to identify any potential issues.
- Review the Closing Disclosure: This is a breakdown of all the costs related to closing on your home. You can expect to receive this at least one day before closing. Review it carefully and ask your lender questions if you don't understand any items.
- Final Walkthrough: Usually your final walkthrough will happen 24 hours before closing to ensure the property's condition has stayed the same since your last visit. It also gives you a chance to check if any agreed-upon repairs were done.
- Signing the Papers: On the closing day, you'll meet with everyone involved in your homebuying process, including the seller, agents, and possibly your lender. You'll review and sign all of the necessary documents, including your mortgage agreement. Once all papers are signed, and funds are distributed, you will get the keys to your new home!
Tips to ensure a smooth home closing
- Save Ahead: Anticipate the closing costs and start saving early if you can.
- Stay in Touch: Regularly communicate with your lender, real estate agent, and closing agent to make sure you have all the necessary documentation they request.
- Review All Documents: Don’t rush. Take all the time you need to understand what you're signing.
- Avoid Big Purchases: After your loan is approved and before closing, avoid making significant purchases or taking on new debt as it could impact your credit score and loan terms.
While closing on a home might seem daunting now, it's the final step towards owning your dream property. With careful preparation and an understanding of the process, you'll be well-equipped to handle it. Welcome to the exciting world of homeownership
