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If you are buying a new home or refinancing an existing home mortgage, you will have to pay a fee when you complete your transaction. These fees are called closing costs and you pay them when you come to an arrangement with the seller of the house and transfer the property or when you finalize your loan refinance. Even the best mortgage lenders charge you the closing costs.
Closing costs can be higher than you think, and you don’t want to be caught off guard and scramble to find the cash you need. To make sure that doesn’t happen, here’s how to decide how much money you should save for your upfront expenses during the home buying or refinancing process.
Allow this amount for closing costs
When you buy a house or refinance a mortgage, you should budget around 2% to 5% of the value of the house or the amount of money you are borrowing. For example, if you take out a mortgage for $ 400,000, you can expect to pay between $ 8,000 and $ 20,000.
It may be more money than you expect to pay, but it’s a reasonable amount to expect, especially since Ascent’s 2020 Closing Costs Study found that the average closing costs in the United States total approximately $ 5,749.
It’s also quite a wide range, but that’s because taxes and other fees can vary from state to state, as well as from lender. In Pennsylvania, for example, residents typically face the highest average closing costs, totaling around 4.99% of the home price, according to research from The Ascent. In other states, such as Colorado, Wyoming, Montana, and Indiana, closing costs are much lower – less than 1% of the home’s selling price, on average.
How do you know the amount of your closing costs?
While knowing the range of closing costs can be helpful when starting to save for a home, the closer you get to completing your purchase or closing your refinance loan, the more specific you need to be in the process. estimate of the amount to be saved.
Lenders must disclose the specific amount of closing costs they will charge when you apply for a loan to buy a new home or to refinance your existing mortgage. These disclosures to lenders will detail both the closing costs that you are allowed to seek – such as attorney fees for closing and investigative costs – and the ones you can’t, such as expert fees and tax research costs.
You’ll want to compare these different fees from different loan providers when deciding which one is best for borrowing. Once you have decided to go ahead with a particular lender, you will need to start saving the exact amount of closing costs that you will need to pay to complete your transaction.
You need to find that money on closing day, and you don’t want to have to scramble to find thousands of dollars at the last minute. Plan ahead and be prepared to have the cash you need to complete the transaction.
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