If you want to purchase a house, you've undoubtedly started putting money down for the down payment, which is the first step in the home-buying process. But have you also considered setting aside money for the closing expenses?

You are not alone if you answered "no" to this question. Closing costs catch many homebuyers off guard, and usually not in a good way. Buyers are sometimes taken aback by the unexpectedly high cost of these items.

On the other hand, knowing what closing costs you might have to pay will allow you to prepare yourself better. Closing expenses may add up, but you can reduce your spending if you know where to look for them and where to cut corners.

So, before we discuss how much cash you'll need at closing, let's first discuss closing costs.

What are closing costs?

To put it simply, closing costs are fees associated with buying a house. That would be things like paying for the Lawyer, title work, inspections, appraisals, lender fees, etc.. These are all necessary in order for you to purchase a house and be protected, both legally and financially!

What are the typical closing costs?

Closing costs typically range from four to five percent of the purchase price of the property. That's $8,000-$10,000 based on a home price of $200,000. That’s a chunk of change! 

In general, a down payment can range from 0–20% plus closing costs is required. It's possible to spend between $10,000-$40,000 for a down payment and closing fees on a $200,000 home.

Are there methods to save money on closing costs? (Spoiler: Yes!)

Be aware of these hefty sums, however, you can reduce closing expenses in a variety of ways. One of those ways is by putting the funds you have into an electronic savings or money market account so you gain higher interest on those funds than a typical savings account. Transferring the funds to your checking account before closing should be a simple process. 

All lenders charge similar closing costs, and some expenses aren’t truly negotiable while others are. Start looking for ways to save money by looking at your "good faith estimate" (GFE) of closing costs, which you get when you apply for a mortgage. All lenders are obligated to send you a GFE, so you can compare closing costs from multiple lenders to find the best deal.

You can also shop around for home insurance quotes as well! Many insurance companies offer discounts for multiple policies (ie: auto, home, bike, etc..) and some even offer discounts if you're a first-time home buyer! So make sure you take a peak and see what options you might have available to you!

Where can I get the money to cover the closing costs?

Now that you've gotten the best deal possible on your closing costs, it's time to fork over the cash. The Buyers expenses must be paid via wire or check at closing. Your Lawyer will advise you prior to settlement closing instructions. 

There is also the potential to have the seller cover part, or all of your closing costs as well. It will be dependent on that seller's specific needs, but it does happen! Sometimes you have to negotiate the purchase price (in order for them to agree), but if the market allows for negotiations, it is an option for you! 

Final Thoughts

Money set aside for closing fees isn't exactly high on anyone's priority list, and that's to be expected. But if you research and bargain well, you might find that your closing costs are much lower than you thought, and that'll provide you with enough cash to splurge on a brand-new sofa and TV for your living room.

If closing costs scare you, Loft Realty can help you relax during the home-buying process. Feel free to reach out to us today, and together, let’s get you that new home. Don’t forget to also read about the most frequently asked questions when buying a home here in Delaware.