You found it. The perfect car. You’ve saved for years, done your research, and braved the shudder-inducing viper pit of salespeople. You’re sitting down about to sign the papers when you see that the price you had agreed on is in fact several hundreds or thousands dollars more. With suppressed glee, the salesman asks, “Ah yes, hadn’t you factored in taxes? And vehicle registration? And the doc fee? And the ‘absolutely necessary’ etching fee that simply adds the VIN elsewhere on your car??” (PS-Don’t ever pay the etching fee.)
It can be unpleasant, to say the least, to come to the end of an expensive transaction only to find out that you were unaware of all the costs. And it doesn’t just happen when you’re buying a car. Even more jam-packed with fun little fees are closing costs on a home!
It’s better to be prepared, so here are some basics:
- Closing costs include all of the fees that are related to receiving a loan.
- The law requires lenders to send you a Good Faith Estimate which states the estimated costs of closing the loan.
- The fees that are charged will vary depending on the lender you are using. This is one reason why it is important to shop around for the best lender.
- It is important that you study these fees and make sure that you know what each one is before you get to the time of closing. Make sure that the final fees are similar to the figures given at the time of application on the Good Faith Estimate. Some are allowed to fluctuate, others are not.
- There are three different types of fees at closing: costs of getting a loan, charges for establishing and transferring ownership, and government costs.
You’d hate to have your down payment all saved up and your purchase price all negotiated only find out that you owe thousands of dollars more than you expected. In general, closing costs range from about 2-4% of your loan amount. It can often be negotiated that the seller of your new home covers them, but keep in mind that he’s probably not Mother Teresa and may expect a higher selling price in return; so ultimately, you’re still paying for them. Closing costs can also be added to your loan amount, but like any loan, that extra interest you’d be paying adds up in the long term. In achieving your dream of homeownership, it’s best to plan on these costs from the beginning, and pay as much cash as possible. This will also reduce the likelihood of you slapping your closing agent like you did that car salesman.
Tune in for the Family Life Center’s next newsletter which will excitingly detail specific closing costs to expect!
