Saving for a home is a hefty undertaking, especially when you are unsure how much you will need to set aside! It's common knowledge that you need to have a certain percentage saved for a down payment, but did you know there are other fees you need to pay when you close on your home? These additional fees are called closing costs. Understanding what they are, how much they will be, and what is included in them can help alleviate any financial surprises when buying your home. Our lending partners from Flat Branch Home Loans know the ins and outs of closing costs and are here to give us the deets!

What are closing costs?

Let's start with the basics: What are closing costs?
Closing costs are made up of two primary sections:

The expenses needed to process and close a loan
The fees you will need to pay for your house every year (these are often called pre-paids)

So, what are some of these fees?

What is included in your closing costs varies based on where you are buying the home, the condition of the house, and the loan you choose. Below are a few of the fees that may be required for your home:

Expenses to Process a Loan

Appraisal Fees: Appraisals are an estimated value of your home determined after inspecting the property and comparing the homes sold in that area. Based on the findings from the appraisal, mortgage lenders will determine how much money they will let you borrow for the home.
Lender Fees: Lender fees cover anything the lender uses to process, approve, and finance your loan. This may include things such as underwriting your application, registering your mortgage with the government, and processing origination fees (charges made by lenders when you take out a loan).
Title Company Fees: When you close a home, the title company processes the transfer of ownership and will purchase title insurance. Escrow, courier fees, recording fees, and wire transfer fees are some things that may be included in this portion!

Pre-Paid Fees

Property Taxes: Property taxes are paid to your local government in exchange for the use of public services like schools, roads, and police stations. At the time of closing, you pay the property taxes due from the date you closed through the end of the year.
Private Mortgage Insurance: If you put down less than 20% of the total value of your loan, your lender will require you to have Private Mortgage Insurance, or PMI, and you may have to make the first payment at the time of your closing.
Homeowners Insurance: The payment for a full year of homeowners insurance will be collected when you close, and your lender will make that payment to your insurance company. The amount varies depending on the value and location of your home and the coverage and premium amount. Your lender can usually provide suggestions so that you can shop around to find the best rates!

This list is not exhaustive - other fees you may need to pay include pest inspection fees, notary fees, and flood certification fees. However, it should give you a solid place to start and help to educate your conversations with your lender!

How much will my closing costs be?

While closing costs vary based on location, they are typically about 2 to 5 percent of the total cost of your home.

As a home builder, we have some insight into the average closing costs for our homes and can give you some rough estimates: For a Schuber Mitchell Home in the Joplin Metro area, average closing costs will be around $4,000 . If you buy a home in Northwest Arkansas, closing costs will be slightly higher at around $5,000 .

Remember, these are rough estimates - your loan officer will be able to give you a more accurate number for your individual home loan!

Can I roll closing costs into my loan?

Closing costs are expensive, and rolling them into your mortgage can be a helpful way to help alleviate some of that financial burden. Here are a couple of ways to make that happen and a few things to keep in mind when making this decision:

#1 - The first way to roll in closing costs is to add them to the total amount of your loan. However, your home must have a high enough appraisal to do so. This means your house has to appraise for the price of the home + the price of your closing costs. If the appraisal amount does not cover those extra fees, that is okay! Your house is still worth the appraisal amount - it just did not over-appraise, so you will be responsible for covering the closing costs.

#2 - Another way to roll closing costs into your loan is if you put more money towards your down payment than required by your loan type, you can choose to put some of that money towards your closing costs. Keep in mind that your loan-to-value ratio (the amount of your loan compared to the value of your home) will increase. If your total loan-to-value percentage ends up being more than 80%, you will most likely have to pay PMI each month.

Rolling closing costs into your mortgage can be helpful when facing the mounting price of buying a home. Just remember, you will pay interest on that amount, so if you can pay these fees in advance, it will help save you money in the long run!

When do I pay my closing costs?

Now that you know what closing costs are - when do you actually have to pay them? These fees are due at the time of closing. As you get closer to your closing date, your title company will calculate the total amount you need to bring with you to the closing meeting. This amount includes any remaining down payment and your closing costs. If you have any lender credits, seller-paid credits, or if you chose to roll closing costs into your loan, that amount will be subtracted from the total! This total amount is what you pay to the title company, usually via a cashier's check or wire transfer.

And that's it! Those are all the basics that you need to know about closing costs! We know purchasing a home can be a daunting task, especially considering the financial uncertainties involved in such a complicated process. Understanding closing costs and how they impact your budget can help to shed light on some of those tricky financial things. We hope this blog helped ease some of your worries and made you more confident as you start your home buying journey!

If you are thinking of purchasing a home and still need some of those financial questions cleared up - chat with someone from our preferred lending company, Flat Branch Home Loans . They are the experts when it comes to getting you pre-approved and securing the best possible home loan!