Without question, it is important to know upfront all costs associated with the purchase of a home. That is one area of the home buying process that should never be a mystery. Your real estate agent could give you an idea of what to expect. However, it is your lender who will provide a clearer picture; they are required, by law, to give you a good faith estimate (GFE) within 3 days of applying for a home loan.
A recent study by ClosingCorp, a provider of residential real estate closing cost data and technology for mortgage and real estate industries, revealed that of over 1,000 millennials (age 18-34) surveyed, who plan on purchasing a home, two-thirds were unaware of closing costs. Closing costs are costs related to getting a loan that is charged by the lender and other third parties related to the home loan process. In Los Angeles, closing costs typically run between 2% and 3% of the home’s purchase price, and based on the median price for a single family home of $447,010, that would be between of $8,940.20 and $13,410.30! Closing costs include: application fee, retrieval of credit report, appraisal, underwriting fee, title insurance, recording fee, escrow deposit, etc. Downpayment, principal and interest payments are additional and are not included in these costs. Some closing costs items are negotiable and the seller might even agree to cover part or all of the closing costs.
To assist first time buyers, anyone not owning a home in the past three years, Fannie Mae has introduce a program that will cover up to 3% of the closing costs after completion of their online course, HomePath Buyer Ready Program and, will also reimburse the $75 costs to participate in the program, at closing.
So just make sure you’re working with a lender/mortgage broker, who will take the time to explain the details of your home loan, you want to know upfront exactly what you’re signing off on, because if not done correctly, it could cost you more than your bargained for.
Source: “ClosingCorp National Survey Reveals Two in Three Millennials Who Plan to Own a Home Are Unaware of Closing Costs” ClosingCorp (March 25, 2015). “Fannie Mae Launches HomePath Ready Buyer Education Program for First-Time Homebuyers” Fannie Mae (April 14, 2015).