First Time Homebuyer? What You Need to Know About Closing Costs
September 8th, 2009 | 
Author: Closing costs are very significant in any real estate deal. First time homebuyers may not be aware that closing costs can be as high as 15 percent of the sales price, much less know what closing costs really are. Lenders often require a buyer to pay for closing costs upfront while some lenders package it with a loan. Understanding what closing costs are will help homebuyers in budgeting their finances and even negotiate for a lower final price.
Homebuyers have to keep in mind that lenders base their maximum loan amount not on the net price or the difference between sales price and closing costs but on the sales price of the property. Closing costs can be assigned differently and you can ask your Realtor and lender to assemble a deal that will work best with your budget.
The first step in understanding closing costs is to learn what buyers are typically responsible for. Barron’s ‘Smart Consumer’s Guide to Home Buying’ explains that it’s important to understand that custom – and not law – dictate how closing costs are allocated and what the buyer and seller are required to pay as part of the contract.
The buyer traditionally assumes all fees and discount points of a loan. Loan fees and discount points differ from one lending institution to another and the lender often adds these at the end of the contract. Lenders will sometimes waive these fees for preferred bank customers or will not include this in the contract but these are exceptions to the norm so do calculate these costs at the start of your loan financing process.
Buyers also pay for the insurance premium of the homeowner’s title. Buyers usually have to pay the premium first before proceeding with a formal home buying agreement. It is advisable to pay for this upfront so that you won’t have to include this cost in your loan package. Look for the best homeowner’s insurance policy rates and deals as the premium varies between each insurance company.
In most cases, the following costs are the responsibility of the seller. Sales Commissions – these are allocated to both the buyer’s and seller’s agents, and will vary significantly by the agent you or the seller has contracted with.
Home Inspection Costs – All home inspections and other property testing costs should be shouldered by the seller before the home is actually purchased.
Insurance of the Title – Title insurance costs are normally listed as part of closing costs and are the responsibility of the seller. New homebuyers commonly make the mistake of assuming that they are responsible for paying any obligations with the title company.
Understanding the breakdown of closing costs can give you a more accurate overview of what the final price will be at signing. Some lenders can provide you with an estimate well before the closing date and many are willing to explain all of the fees, discount points and other items applicable to your loan early in the loan financing process.
If you’re a new homebuyer looking for homes for sale in MN, the internet is one of the easiest ways to find what you are looking for. The Minnesota MLS Listings allow you to easily search by price and location.