When buying or selling a home, the topic of closing costs is bound to come on the horizon. It takes a village to purchase or sell a home, with several different people playing a role in the real estate transaction. Buyers, sellers, real estate agents, and inspectors are just a few of the different people who dip their toes in the experience. Closing costs are the fees associated with the various services required to close the sale. But what do these closing costs include and how should buyers calculate them?
In this article, Simple Realty Services will explore what closing costs include, how to calculate closing costs, as well as some helpful tips for buyers and sellers looking to close their real estate transactions seamlessly. With our helpful guide, you’ll approach your home buying experience with welcomed transparency.
Closing costs are the fees associated with finding a home, securing a mortgage, placing an offer, and closing the real estate transaction. Purchasing a home isn’t as simple as choosing the perfect property and grabbing the keys, there are numerous steps along the way that might have fees associated with them. Closing costs will vary widely based on the property type, perceived value, and manner of closing escrow. Let’s explore some of the most typical closing costs:
Some closing costs that sellers might be expected include:
General Rule of Thumb: as a quick “back of the napkin” estimation, we use 1% of the sales price as an estimate for Seller’s closing costs. I.E. on an $800,000 sales price, sellers can estimate roughly $8,000 (i.e. 1%) is a good starting point to estimate closing costs in CA.
Understanding how to calculate closing costs is highly dependent on understanding where these closing costs originate. The closing costs we’ve reviewed are only a fraction of the potential fees that can accrue during the transaction. Employing the help of a real estate agent or attorney can vastly improve your ability to anticipate and calculate these costs. These professionals will have a strong working knowledge of the entire process, which can be very helpful down the line.
While each property will vary, the average cost of closing costs is 3-6% of the home’s price. Here are some helpful tips for calculating closing costs so that you’re not blindsided at the end of your real estate transaction.
When getting approved for a mortgage, the lender will usually be able to provide an estimate of the anticipated closing costs based on the home’s value, estimated down payment, and mortgage interest rate. Since many closing costs are based on a percentage of the home’s value, an accurate estimate is crucial for securing those funds down the line.
Now that you have an idea of the home’s price point, it’s much easier to break down the potential closing costs. These closing costs will include lender services, appraisal fees, and clerical items such as insurance, property taxes, and titles. We also explored numerous other charges that might be included based on the buyer’s experience. Gather a comprehensive breakdown of these services to calculate the anticipated fees.
While some closing costs are inevitable, such as the mortgage application fees or title insurance, some services can be worked around or potentially deducted. For example, some lenders might include closing costs within the mortgage itself, that way buyers can pay these fees off over time rather than making a lump sum payment.
Once you have a final total for closing costs, make sure that all information you’ve gathered is based on local state requirements and price points. Add up each of the closing costs to determine what will be due at escrow. Another general rule is to always estimate high to avoid unnecessary curveballs. It’s always better to be prepared to pay something and later save cash than not save enough to cover these costs. With that said, here in San Diego we use a 1% of selling price as a quick easy estimate. I.e. If a house sells for $700,000 it is reasonable to budget 1% of that ($7,000) for closing costs alone.
Whether you’re a first-time homebuyer or you’re simply looking to save money wherever possible, understanding how to calculate closing costs plays a substantial role in any real estate transaction. By anticipating these costs and negotiating when possible, buying a home becomes seamless.
Simple Realty Services can help sellers list their property and have a care-free real estate experience. With cash offers that help sellers move on to the next great investment quickly, Simple Realty Services can expedite the process of selling your home. Contact Simple Realty Services today to learn more.
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