Key Video Takeaways
Renada, a New Yorker ready to make the switch from renter to owner, thought she'd sailed through the home buying process. She was approved for a loan, found a condominium in Hell's Kitchen and signed a purchase agreement, all in a relatively short period of time. She expected more of the same during her closing appointment. As she reviewed the closing paperwork, though, she realized that she was in unknown and unexpected territory: The list of fees associated with her purchase was dizzyingly long, and the price tag higher than she'd imagined.
"Everything came to a stop," she said. "I don't get it! There's a title fee, an escrow fee, insurance. It's too much fine print for me."
We asked the What Works Now experts to explain just how much buyers should anticipate spending on closing costs and what those costs represent. Here's what they said:
Lynnette Khalfani-Cox, a.k.a. The Money Coach, says that buyers can expect to pay at least 3 percent of their loan amount in closing costs. That means a borrower taking out a $300,000 loan can expect to pay about $9,000 in fees. Some of these fees are for lender-required steps in the purchase process, such as a credit check fee or loan application fee. Other fees relate to the property itself, such as fees related to the title or title-related insurance on the property. Then there are escrow fees, essentially money set aside so that the lender can pay property taxes on the home, on the buyer's behalf.
Essential How-To Guides on AOL Real Estate Home Buying Selling a Home Renting and Moving Home Improvement "These fees are a normal part of the mortgage process and all consumers should be aware of them," Khalfani-Cox says.
Todd Dal Porto , Home Loans Enterprise Sales Executive at Bank of America, says that many lenders are trying to provide more transparency to borrowers so that they understand how much they're paying -- and what for -- at closing. Bank of America provides borrowers with a one-page document called The Clarity Commitment®* which outlines loan terms and expenses as well as the costs that the borrower must pay at closing. This helps the borrower prepare for any additional funds that they may need to pay at closing.
|Piggy bank: Set aside a separate savings account and pay it in full.||1 (33.3%)|
|Newlywed gift: Asking a relative to help cover the costs.||1 (33.3%)|
|Hard bargain: Negotiate with the seller to cover some of it.||1 (33.3%)|
There are other ways to avoid headaches and heartaches at closing, the What Works Now experts say.
For starters, homebuyers can ask their lender to provide them with an HUD-1 Settlement Statement. This statement must legally be made available to a borrower 24 hours before their closing appointment. (An HUD-1 Settlement Statement is similar to the Good Faith Estimate documents a borrower receives at the beginning of their loan application process, and many borrowers actually compare the two and ask their lender about any adjustments to expenses between the two documents).
In addition, consumers can ask their loan officer to accompany them to closing appointments, so that the officer can help get answers on the spot regarding particular closing costs.
Next time, Renada hopes her paperwork will be "solid" and she'll be prepared to close. If she follows some of the steps outlined by Lynnette and Todd, she'll be in a great position to walk away from the closing as a happy new homeowner.
Interested in learning more about the hidden costs involved in buying a home? Here are some AOL Real Estate guides that might help:
Want to learn more about home buying and home finance? If so, you won't want to miss
the rest of our discussion with Todd and Lynnette on
"What Works Now: Smart Moves When Buying a Home,"
created by AOL Real Estate in participation with Bank of America Home Loans.
Watch it now on AOL Real Estate.
*The Clarity Commitment® summary is provided as a convenience, does not serve as a substitute for a borrower's actual loan documents, and is not a commitment to lend. Borrowers should become fully informed by reviewing all of the loan and disclosure documentation provided.