You have been saving and saving for your home purchase and you finally feel ready. You find the right agent to help you with finding the home of your dreams that fits nicely in your price range. Your offer is accepted, and begin to get the loan documents from your bank to make your purchase. You get your initial workup on your future loan from your bank only to find out that your sizeable downpayment now does not quite seem to be enough to pay on the loan. What happened? Chances are, the unexpected guest on your paperwork is your closing costs.

That is obviously an overly simplified example of how someone might discover this thing called closing costs. A good agent would have cued you in already on this fact of home buying. But let's assume they have not. What are closing costs? Why do you have to pay them? Or, do you have to pay them? Let's take a look at each question.

What are closing costs? These are costs associated with the creation and funding of your loan with your financial institution. They include things such as fees owed to the bank to create the loan, appraisal costs to appraise the value of the home you are purchasing, buy-downs or other change you have negotiated with the lender to help create a good loan for your purchase, and title insurance among other things. Different banks will have different fees associated with getting a home loan through their institution so it is important to consider all parts of the loan costs when looking at which bank to use. The easiest way to compare this is to look at each bank's APR (Annual Percentage Rate) for their home loan offers. APR not only considers the interest rates the bank offers, but also the fees associated with receiving the loan. APY (Annual Percentage Yield), on the other hand, only considers the interest rate on the loan by itself. Why are you paying these fees when you are already spending so much on purchasing a home?

In order for a bank to provide a loan product for you, they will require you to have some skin in the game, which is typically done via downpayments on the loan as well as specific requirements investors have on offering a loan for your home purchase. For instance, almost every loan product will require you to provide an appraisal on the home showing the value you intend to pay from your Real Estate Purchase Contract is actually justifiable with the market in your area. Another requirement they will have in essentially all home purchasing contracts is to have a title agency search the title on the home for any liens on the home or practically any other possible reason a seller may not be able to actually sell you the home before the bank will provide you with funds to make the purchase; they are not going to lend you money to buy something you cannot actually buy. Most other fees are typically what the bank charges in order to be profitable themselves and cover their own expenses in creating a servicing your loan. So, do you really have to pay these fees?

Here is where your agent can really help you get the best deal on buying your home. A good agent will be familiar with current market trends and buying and selling conditions. In some market situations, your offer to purchase a home can include a request for the seller to cover your closing costs in part or in full. In those cases, part of the settlement of the purchase will be funds provided to your lender from the proceeds the home seller received from the sale of the home to cover these closing costs for you. In the other cases, though, you will need to be saving up for some if not all of these closing costs yourself.

These scenarios have all been hypothetical. Do you want a more specific plan for your future home purchase? Contact us today and will work with you on a plan to get you into your home for the least amount of money possible.