What the heck are closing costs?!

Why are some buyers surprised with closing costs?

To begin, there are 3 different parts of a mortgage that you need to worry about: down payment, purchase price, and closing costs.

Down payment

A down payment can be anywhere between 0 and 20+ percent of the purchase price, and is due at closing.

Purchase Price

Say we are looking at homes in the $200,000 range, but we score and get a house for $190,000. That would be the purchase price.

Closing Costs

In most states, you, as a buyer, won't pay for representation of a real estate agent. The seller usually pays for both the listing agent's and buyer's agent's commissions. However, the buyer does usually pay closing costs, which are essentially the costs of doing business. 

With a purchase price of $190,000, your closing costs will be between $5,000-7,000 and will be due at closing. That can be a lot of money, so if you don't have the money, or just want to save the money, you can have the seller pay the closing costs. However, if you are going to do that, say the closing cost is $5,000, the best way to do this is to tack it on to the purchase price. So now, you have a purchase price of $195,000 with the seller paying closing costs. You can see how this nets the seller the same amount of money, but allows you to finance the amount in your mortgage payment.

There are closing costs for both the seller and buyer, so if you would like a comprehensive list of those costs, please reach out to us and we would be happy to provide that for you.

Like this blog? Check out the reasons why you should get pre-qualified for a home loan!