Understanding Closing Costs

by Charlotte Wood
(last updated February 21, 2009)

Buying a house is a big deal and includes a very complicated process. Alas, home buying isn't as easy as sitting down and signing a few documents. When you buy a house you have to sort out your finances, your loans, and all the other fine print; it's all so confusing! The cost in buying a home isn't limited to just the list price of the home because you have to factor in closing costs. The term "closing costs" however is a bit vague. What are closing costs? And why do you need factor those in to your home buying budget?

Closing costs are essentially the fees associated with actually closing on the house (i.e. transaction and processing fees). There are two kinds of closing costs: non-recurring and recurring costs and those are pretty much self explanatory. Non-recurring costs are those costs that you only have to pay once, while recurring costs are things like property tax and homeowner's insurance that you keep paying throughout the time you possess the house. The costs you really need to focus on when budgeting in a mortgage are the non-recurring costs because those usually need to be paid at the time of closing.

When you talk with your lender about financing your house, they'll usually give you a closing cost estimate and it's safe to assume that the actual closing costs will be more than the initial estimate; budget in more money than the rough amount your lender gives you. Financing closing costs can be a whole other ordeal in itself and is often covered through bridge loans or shorter term loans used to cover the closing costs and paid back after the sale of your previous house has gone through.

Closing costs, in essentials, aren't that hard to understand, but in order to go into your mortgage agreement with a sound foundation, you'll need to understand what exactly those costs go toward and who you're paying. This can all be done when talking and discussing with your lender. It's exciting to buy a house, and while at times frustrating and overwhelming, the satisfaction of buying your own home is irreplaceable!

Author Bio

Charlotte Wood

MORE FROM CHARLOTTE

Hang Clothes before Laundry Day

Laundry day is crazy and you're probably willing to follow any advice that will make it less so. By following this simple ...

Discover More

Tasty Low-Calorie Desserts

Just because you decide to eat a low calorie diet doesn't mean you can't have desserts. Here are a few ways to spice up your ...

Discover More

Building Good Credit

As you enter the world of adulthood you can start with a clean financial slate and start building your credit score. There ...

Discover More
More Money Tips

Types of Home Loans

If you or someone you know is getting ready to buy a home, don't miss this tip! It lays out the most common types of home ...

Discover More

Getting Prequalified

Buying a home is a big deal and you want to go about it in the right way. If you can prequalify for a loan, then you have ...

Discover More

Picking a Mortgage Term

Picking a mortgage term is only one of the things you'll have to do when taking out a home loan, but fortunately it's one of ...

Discover More
Comments

If you would like to add an image to your comment (not an avatar, but an image to help in making the point of your comment), include the characters [{fig}] in your comment text. You’ll be prompted to upload your image when you submit the comment. Images larger than 600px wide or 1000px tall will be reduced. Up to three images may be included in a comment. All images are subject to review. Commenting privileges may be curtailed if inappropriate images are posted.

What is three more than 8?

There are currently no comments for this tip. (Be the first to leave your comment—just use the simple form above!)


Videos

Subscribe to the Tips.Net channel:

Visit the Tips.Net channel on YouTube