As anyone who has ever bought a house before knows, the process is expensive. A house is likely the biggest purchase a person will make in their lifetime, which is one of the reasons that there are a variety of fees associated with buying a home. Closing costs is one thing that many excited new homebuyers forget about budgeting for. Besides the down payment and first mortgage payments you have put aside, you also need to consider private mortgage insurance, homeowner’s insurance, title insurance, appraisal fees, escrow fees, etc.

What are closing costs?

Closing costs are essentially all the fees that you must pay at the closing meeting, which is the last step in the house buying process. Closing costs attached to your home can differ depending on your mortgage type, your lender’s requirements and where you live. Some examples of possible closing costs you may have to pay include:

Lender fees, including:

  • Application fee
  • Origination fee
  • Credit report charges
  • Wire transfer costs
  • Property taxes

Fees to external companies and agencies

  • Property appraisal charges
  • Inspection costs
  • Survey fees
  • Real estate agent commission
  • Attorney, escrow and closing fees

Property ownership fees

  • Homeowners insurance
  • Title searches and title insurance fees
  • Recording fees
  • Fees to change over or hook up new services

As you can see, closing costs can really add up, so it’s vital to ensue you have money set aside to pay them before you get the keys to your new home. So, how much should you save for closing costs?

How much should you have on hand to cover closing costs?

Closing costs can vary, but typically buyers can expect to pay between two and five per cent of the home’s purchase price. That means that closing costs could be anywhere from $10,000 to $25,000 on a $500,000 home. Again, this is on top of your down payment, which can be anywhere from five to 10 percent of the price of the home.

How to reduce closing costs

Although closing costs might seem intimidating, they are an essential part of buying a home and in most cases are designed to offer you protection. You can save on closing costs with these tips:

Shop around

Shop around before choosing a potential lender or third-party services, such as title companies and homeowners’ insurance policies. Closing fees can differ greatly based on different lender requirements. Also, keep in mind that you don’t have to use the agents, lawyers or third-party companies that your lender suggests. Do your homework and choose someone with fees that fit your budget.

Schedule the closing at the end of the month

Try and schedule the closing date near or at the end of the month. This can help cut down on prepaid daily interest charges.

Ask the seller for some help

Consider asking the seller to cover all or some of the closing costs. This may occur if a seller is highly motivated to move the property or if it has been on the market for awhile. You might get a hard “no,” but it never hurts to ask.

Double check for and negotiate loan-specific fees

A big reason to shop around for lenders is to avoid adding unnecessary fees to your loan. Also known as junk fees, if you spot any fees on your loan agreement that you’re unsure about, make sure to speak up. Ask about reducing or eliminating them. This is where comparison shopping becomes very important, because you can use the knowledge you gained when shopping around to negotiate for better fees.

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