Budgeting for Closing Costs

Everyone knows that buying a home is a BIG financial investment, but did you know there are additional costs in getting a mortgage loan, besides the down payment?

Closing costs include items like property taxes, homeowner's insurance, title search fees, and appraisal fees. They also pay the people who’ve performed services throughout the loan process, like the appraiser and your real estate agent.

While they’re called closing costs, you may be asked to pay some of them before you officially close on your home. For example, you may have to pay for your appraisal and home inspection right after they’re completed. All closing costs will be itemized and given to you at closing on your Settlement Statement, but don’t hesitate to ask your mortgage banker or agent to clarify if something doesn’t look right!

Estimate Your Closing Costs 

Generally, closing costs are 2 - 6% of your purchase price. You can do this simple calculation to see about how much you’ll need for closing costs. After you apply for your loan, your mortgage banker will give you a Loan Estimate that breaks down your interest rate and estimated monthly payment, taxes, insurance, and closing costs. The closing costs listed on that document may change a bit throughout the process, but it will still give you a good idea of what to expect.

You can also ask your mortgage banker for a “closing cost worksheet.” This document focuses on the closing costs and gives you a great idea of what to expect, as well as preparation for how to pay for them. Speaking of…

Who Pays for Closing Costs? 

As a homebuyer, you can negotiate with the seller to pay some of the closing costs. Every loan has different guidelines about how much a seller can pay. Talk to your mortgage banker to learn about your options. If you’re going to have to pay for some, or all, of your closing costs, it’s important to remember to include that sum in your budget.

Remember too that down payment assistance programs typically allow closing costs, too. Your mortgage banker can help you find the programs in your state. For FHA borrowers, Atlantic Bay’s Buyer Boost allows qualified buyers to finance the required 3.5% FHA down payment, along with other benefits.

Finally, don’t forget gift funds! Family and friends can give you money to help with the down payment and closing costs – you just need to show a paper trail.

Save a Little Extra Each Month 

It may seem obvious that you’ll need to save for a down payment for your house, but you should also set some cash aside each month to cover other homebuying expenses. Getting into the habit of saving is a good practice to keep up - even after you purchase your home!

When setting any type of budget, look at your current spending habits and see where you can make cuts. See where you’re spending a little more than you need to and try cutting back. Saving a little extra money every month will add up! 

1. Set aside your tax return or bonus. Try putting any unexpected or extra money you receive directly into a savings account. Out of sight, out of mind!

2. Cut the cable or streaming services. With streaming and online options, it’s easier than ever to watch your favorite shows and discover new ones without cable. But signing up for multiple streaming services can add up quickly. See if you can drop some of your subscriptions and put that extra savings each month in the bank.

3. Eat at home. Your morning Starbucks and lunches out are great, but they come with a price. Try packing your lunch and brewing coffee at home before heading to work. Just as delicious!

4. Cut down on your energy consumption. Turn off the lights when you leave a room, lower your thermostat, and decrease the temperature of your hot water heater to save a little on your utility bills. (Plus, it’s great for the environment!)

While you won’t have to pay closing costs for EVERY loan, it’s always a good idea to save for hidden costs! By making a few small changes, you’ll be ready for the unexpected. Atlantic Bay is here to help you get started!