We have helped so many members of our mortgage family save money and buy their dream homes! But what about the costs between your down payment and monthly mortgage bills? Closing costs are important to budget for, as they can add up very quickly if you’re not prepared. Making sure you can manage all of your closing costs will allow for peace of mind as you settle into your home!
What Are Closing Costs?
Closing costs are all the payments you’ll have to make after the sale is finalized. They are separate from your down payment and mortgage payments. There are mandatory closing costs, which are required immediately after closing, and there are optional closing costs, which should still be budgeted for to achieve peace of mind in your new home.
Mandatory Closing Costs
As the name would suggest, there’s no avoiding these costs. Examples of mandatory closing costs include homeowner’s insurance, lawyer fees, and land transfer fees. Other “hidden” fees may also be mandatory, including payments to the previous owner for items such as property taxes and utilities if they have been prepaid.
Optional Closing Costs
While not legally required, it is highly recommended that you budget for these optional closing costs. These include changing of locks on the doors, general moving costs (so you don’t need to nag your 5 closest friends), renovations, decoration, and urgent repairs. You may or may not need to save for all of these items, especially if you’re buying a brand new home, but it is certainly worth the effort to plan out which optional costs you want to incur well ahead of your closing day.
Why It’s Important To Budget for Closing Costs
If you’re unprepared for the closing costs associated with buying a home, you may feel overwhelmed during a time that should be filled with happiness and excitement. Being unprepared for the mandatory closing costs may even put new homeowners into early debt that could have been avoided by advanced planning. Every situation is different, but safely expecting your mandatory closing costs to end up being about 2% of your home’s value is a good place to start. It’s always a good idea to talk to your mortgage broker about closing costs and how to plan for them ahead of time, to ensure that your move in day is free from financial frustration! For more tips on buying your first home, you can check out Tips For First Time Home Buyers or contact us today!