Closing Costs: Should you Budget or Negotiate?

When I ask the question “Have You Budgeted for Closing Costs?” many first-time home buyers give me the ‘deer in the headlights’ look. What are closing costs they ask?

When buying a home there are a number of fees that are due. They are usually the costs required to get a mortgage. “Closing costs” is a term used to lump together those fees associated with the title and lending process. Typically they range from 2% to 5% of the purchase price. They include title insurance, origination fees, underwriting fees, document preparation and any home owner’s association fees etc. The average cost is approximately 3.5% for a $300,000 property.

Closing costs are typically considered an out-of-pocket cost to a buyer. These are in addition to the down payment. Unlike the down-payment, they can be negotiated from the seller. There are even some loan programs that allow closing costs to be added to a second mortgage and some lenders will provide options for the closing costs to be paid through the interest rate.

So, is it better to wait to buy a home until you have saved all your down payment and closing costs? The answer is yes and no. Depending on your price range the options you have to negotiate closing costs might be the better route. You also need to think about how long it will take you to save the money. All the advantage that you might gain by saving your own down payment and closing costs might be lost if the interest rate goes up.

If you are thinking about buying a home, let’s sit down and create a plan that will help you capitalize on a strategy that will best fit your financial goals. That plan should includes some budgeting for what you need so that when you want to purchase your dream home it will be done without any surprises!