Julie's previous experience as a Real Estate Agent and an Accredited Buyer Representative for new home construction has allowed her to assist buyers through the entire home buying process and now applies this knowledge to provide exceptional care to home buyers from contract to closing.
One of the out-of-pocket expenses you'll need to consider as part of your new home budget are closing costs associated with the purchase.
What are Closing Costs?
When you close on your home, that is when the title for the property is transferred from the seller (the builder) to the buyer and closing costs are the expenses pertaining to the real estate transaction.
The majority of closing costs are typically associated with your mortgage loan and vary based on the amount you are borrowing.
"At the most basic level, it costs money to borrow money and the charges associated with the closing of your home are to allow for the lender and title company to do their jobs."
Justin Bennett - New Home Sales Agent
Examples of Closing Costs:
- Mortgage Origination Fees
- Prepaid Items & Other Lender Fees
- Escrow or Settlement Fees
- Prorated Property Taxes
- Owner Title Policy (OTP)
- Title Search Fees & Other Title Fees
- Recording Fees
These fees do not go to the home builder and none of the charges are a result of buying or building a new construction home.
There are additional fees paid at closing that may pertain to your home purchase which are also due at the time of closing, such as HOA dues and HOA enrollment & transfer fees. Learn more about HOA fees
Who Pays Closing Costs?
Buyers typically pay the majority of costs associated with closing on a home, primarily because those costs are directly tied to the mortgage loan and there are limits in place pertaining to how much can be paid by the seller.
Based on type of loan you choose, federal guidelines determine the limits in place for how much the seller can contribute towards your closing costs, for example a seller can pay a maximum of 3.5% for FHA loans and 3% for conventional loans.
What Closing Costs Will a Builder Pay?
There are often incentives available from a builder to help cover the costs when buying a new home, commonly referred to as a Builder Concession.
Working with your New Home Sales Agent, you can apply any available Builder Concession towards options & upgrades to keep the price of your home (and therefore your loan) lower, but you can also use a set amount towards Closing Costs.
In your New Home Contract, it will specify the amount to be used towards Seller Paid Closing Costs as "up to and not exceeding" which provides your lender with the amount available to apply to associated fees for your loan.
This terminology is designed to keep the terms of the contract clear - if your contract states that Omega will pay up to and not to exceed $2000 and the allowable amount the seller contributes comes to $1997.42, the contract does not have to be amended to reflect the change.
It is important to note that this is not money left on the table as this variance is factored in to the overall concession provided.
Savings with Preferred Lenders
You can also receive additional savings when you work with one of the builder's preferred lenders.
Omega will pay the fee associated with the Survey of the property ($350) as well as the Owner Title Policy (savings based on sales price, typically $1k-$3k) when a preferred lender is chosen.
How Much Are Closing Costs?
Closing costs range from 2-5% of the purchase price of your home, but it is dependent on the type of loan you choose. You will receive a Closing Disclosure from your lender prior to your scheduled closing that shows a breakdown of all the fees & final amount due.
Nerdwallet.com has an easy to use Closing Costs Calculator and helpful info to learn the ins & outs of closing costs.
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This article is provided for informational purposes only. Omega does not warrant or guarantee the accuracy of the information provided and makes no representations associated with the use of this information as it is not intended to constitute financial, legal, tax, or mortgage lending advice. Omega Builders encourages you to seek the advice of professionals in making any determination regarding, financial, legal, tax, or mortgage decisions as only an informed professional can appropriately advise you based upon the circumstances unique to your situation.