For buyers, I’d highly recommend talking to an experienced lender. As part of the prequalification process, you should receive a loan estimate showing what your closing costs will be. That varies, depending on your situation and goals, the loan program, etc.; but typically buyer closing costs are roughly 2-3% of the sales price. This generally will include one-time closing costs and prepaids.
Closing costs are the fees that go to the various parties that help process the transaction – lender, title company, etc. (Real estate brokerage fees are typically paid by the seller.)
Prepaids cover expenses that need to be prepaid at closing, such as property taxes, homeowner’s insurance, and mortgage interest.
Buyers can, and often do, ask the seller to pay some or all of the closing costs, minimizing out-of-pocket expenses at closing time. Keep in mind that you’re effectively reducing your offer by the amount of closing costs you are requesting the seller to pay. So, if the home is listed at $200,000 and you submit a full price offer that includes the seller paying $6,000 of your closing costs, the seller will view that as an offer of $194,000. Also, keep in mind that while interest rates are still low, financing your closing costs does cost you in the long run over the life of the mortgage. With that said, many people would rather pay a marginal amount more per month in order to keep money in their pocket now.
What do closing costs look like for sellers? Your actual closing costs will also vary, but should be about 1.5%-2% of the sales price, depending on various factors. Your closing costs include your share of title expenses, doc prep fees, appraisal, recording fee, survey update, well/septic testing, etc. This does not include real estate commissions or any closing costs you may pay on behalf of the buyer. I usually suggest that sellers don’t get so hung up on being asked to pay buyer closing costs that they lose sight of their bottom line. Subtract any requested buyer closing costs from the offer amount, and that’s effectively your offer.
Anyways, hopefully this is helpful, and I’m happy to discuss it further if you have questions!
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