What’s the Deal with Closing Costs?
Chandler Sawyer
December 26, 2024
Understanding Closing Costs When Buying a Home
Buying a home is an exciting journey, but it involves more than just saving for a down payment. One crucial component that often gets overlooked is closing costs. These fees and expenses are essential to finalize your home loan. Let’s start with a simple overview before diving into a more detailed explanation.
What Are Closing Costs?
Closing costs comprise various fees involved in the official purchase of your home. These include:
- Lender Fees: These cover the costs of loan processing and underwriting.
- Third-Party Fees: These are fees for services like appraisals, inspections, and title work.
- Prepaid Costs: These involve upfront payments for property taxes and insurance, often making up the bulk of closing costs.
How Much Do Closing Costs Run?
Typically, closing costs range between 2% to 5% of the home’s purchase price. For instance, on a $300,000 house, you might pay between $6,000 and $15,000. While these costs are significant, they can be managed with proper planning.
Can You Get Help with Closing Costs?
Yes, there are several strategies to manage these expenses:
- Seller Contributions: Negotiate with the seller to contribute towards closing costs. The allowable contributions vary by loan program, and we’ll guide you on what you can request.
- Lender Credits: Opt for a slightly higher interest rate in exchange for reduced closing costs.
- Assistance Programs: There are programs out there to help with down payments and closing costs. Such as the Oregon Flex Assistance we talk about here.
- Gift Funds: Family contributions can also assist. It’s important to discuss any potential gift funds with us early in the process to manage them appropriately.
Why Planning Ahead Is Crucial
Closing costs can be a surprise to many buyers, but being prepared gives you more flexibility. Working with us ensures that you are fully informed about these costs, explore savings opportunities, and experience a stress-free closing process.
Detailed Closing Cost Breakdown
Here’s an example of a closing cost scenario, and a closer look at what each section of closing costs typically includes:
Section A: Lender Charges
These are what you want to look at when shopping. This contains all lender fees, despite the names given to them individually. Make sure to see if there are any lender credits in section J if you are shopping around. More on shopping rates can be found here.
Section B: Appraisal and Report Fees
Fees for appraisals and various reports required during the home buying process.
Section C: Title and Escrow Fees
Fees set by the state for title insurance and escrow services. Title insurance protects against liens from the seller; escrow fees cover the transaction management and fund disbursement.
Section E: County Fees
Fees charged by the county to record your deed and mortgage.
Section F: Insurance
Covers one year of homeowner’s insurance chosen by you, the buyer.
Section G: Prepaids
Includes three months of homeowner’s insurance to ensure sufficient funds are available for future payments. Property taxes are divided into two parts: one prepaid based on the closing month and another prorated amount reimbursed to the seller.
A Note on Property Taxes
Property taxes in Oregon are attached to the property, not its sales price, or its current market value, preventing sudden spikes in tax rates. There’s a maximum annual increase of 3% in assessed value. So there will be a slight increase yearly, but that means no horror stories of massive property tax increases and escrow account shortages you hear of in lots of other areas around the country.
By understanding these components, you can better prepare for the financial aspects of buying a home. If you have further questions or need a deeper dive into any section, feel free to reach out for more advice specific to your unique scenario. I am more than happy to help answer any question’s you may have, no matter how small.