If buying a first home is a race, then closing is the finish line. You started strong, sprinting ahead of several other racers to break out in front of a bidding war. You rounded the track, gathering all the necessary paperwork, applying for a mortgage and doing your due diligence with home inspections. Now, the end is in sight.
Crossing that finish line takes stamina, determination and a whole lot of support. In this post, let’s discuss a few things you should know about closing costs.
Real estate legal services are an essential part of the homebuying process. A great lawyer will write agreements, sign and witness legal documents, execute the title transfer, discharge your mortgage and ensure you meet all your deadlines to prevent defaulting on purchase offers. They are an indispensable source of help for first time home buyers.
Luckily these days, you can find quality online real estate services at a lower rate than their traditional counterparts. Virtual lawyers provide all the top-notch service you’d expect from a fancy downtown firm but with a lowest price guarantee.
Disbursements and Adjustments
Adjustments are any costs that the seller had to pay in advance that take effect after your possession. These costs may include utilities and property taxes. And disbursements include the fees and charges that lawyers incur on your behalf – title search fees, mortgage registration, etc.
Sadly, there is no getting around these fees. Budget for them in advance of purchasing a home to ensure that you aren’t hit with a surprise at closing. Some experts recommend budgeting between 2-5% of the purchase price for all of your closing costs.
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Transfer taxes vary from state to state, province to province, and – in some cases – on the county or city level. Therefore, providing you with an authoritative, accurate estimate for what you can expect to pay is impossible.
Some US transfer taxes are low (Colorado’s is 0.1%), while some are high (as high as 4% in some American cities). In Canada, some provinces don’t have a land transfer tax, while other’s tax rates hover between the 1-3% range.
Luckily, many places offer first-time homebuyer rebates for transfer taxes. Research the specific location you plan to buy to get a more accurate picture of your costs.
You raced past the finish line and are taking a much-needed gulp of water. But there are still a few things for which you should budget. Set aside money for moving costs, home upgrades, household essentials, utility connection charges, and – in the case of condos – elevator rentals for your move.
It’s also wise to set up an “emergency fund,” a chunk of stowed away money you can access in cases of immediate repair emergencies or unforeseen ownership costs.
This is by no means a comprehensive guide to closing costs, but it should give you a good indication of what to expect. For a fuller picture, you can talk to your local bank or money advisor.