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January 26th, 2023 by

First-time buyers can sometimes be caught off guard by closing costs. Here's how you can prep for them.

When you're shopping for a home, it's easy to focus only on the price of the house and forget about the other costs associated with buying a home. According to Business Insider, closing costs can be over $2,000 in Indiana, including taxes. To avoid showing up at closing with empty pockets, our real estate agents recommend budgeting for the following expenses when preparing to buy a home.

  • Home Inspection
    Home inspections are an important part of purchasing a home, as they help the sale go through with full transparency on your investment. Home inspections can cost between $300 to $500, with additional costs for added services, such as radon or mold detection.

  • Pest Inspection
    Many lenders require a pest inspection to be done on a home before they will approve the loan. This inspection is to look for pests, such as termites that can cause significant damage to homes. This is in addition to the regular home inspection and generally costs around $100.

  • Appraisal Fee
    Another requirement lenders have is that an appraisal is done to ensure the home is worth at least as much as the purchase price. Appraisals typically range between $300 and $600.

  • Attorney Fees
    Some states require an attorney for closing. Illinois is not one of those states, but in special circumstances, you might want or need an attorney. Attorney fees can vary widely depending on the attorney and what services you need.

  • Property Taxes
    At closing, the property taxes for the year will be prorated according to the amount of time you'll be in the home. The seller will be responsible for the portion of the year they owned the home, and you'll be responsible for the rest of the year. To determine how much to budget for taxes, check the listings for South Bend homes for sale or talk to your agent.

  • Title Fees and Insurance
    Title fees and insurance include $200 to $400 to do a title search to make sure there are no liens on the property, plus the cost of insurance to protect everyone involved in case a mistake is made.

  • Prepaid Interest
    At closing, you will be expected to prepay the interest that will accrue between closing and your first mortgage payment. This amount varies based on your loan terms, but your lender should provide you with this information before closing.

  • Prepaid Home Insurance
    You will also need to get your home insurance set up and start paying on that, starting at closing. Home insurance averages around $2,000 a year in Illinois.

  • Escrow
    Typically a lender sets up an escrow account, which is an account from which property taxes, homeowners insurance, and mortgage insurance premiums are paid. At closing, you'll likely be expected to put a couple of months' worth of those expenses into this account.

  • Government-Backed Loan Fees
    If you're getting a government-backed loan, there will be fees associated with this loan that must be paid at closing. These fees typically range from 1 to 1.75 percent of the loan amount, although VA loans can carry a funding fee of up to 3.6 percent.

  • Loan-Origination Charges
    These fees are all the fees your lender is charging, including the application fee and loan underwriting fee. In general, you should expect these fees to be around 1 percent of the total loan amount. The lender is required to provide you with a breakdown of these costs a few days before closing.

According to nerdwallet.com, you should budget for closing costs ranging from 2 to 6 percent of the cost of the home. For more information on closing costs, contact us today.

Categories: Buying a Home
Tags: Cressy & Everett, South Bend IN, Buying a house, First-time buyers, Home-buying tips
Related Markets: South Bend

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