Buying A House? Keep These Home Closing Costs In Mind

You’ve found the perfect house and you’re ready to buy it. All you need to do now is show up at closing with your down payment, right?

Well, it isn’t quite that simple. Closing on a home comes with additional costs, mostly to pay people like your home loan servicer or realtor for their work or for things you’ll need in an escrow account, like home insurance. Planning ahead for your down payment is a great first step, but to ensure you have everything you need to close on your home confidently, there are additional home closing costs you should be aware of. At Rivers Edge Bank, we know the home buying process can feel like a marathon, but we promise closing on your home is the last stretch before the finish line. If it’s been a while since you’ve gone through the process or you’re a first-time homebuyer, here’s a guide to the key closing costs and expectations you’ll want to consider sooner rather than later.

Closing Costs For Buyers & Sellers

Closing costs are typically 2% to 5% of your home’s price. That’s $4,000 to $10,000 upfront on a $200,000 home. These costs cover the appraisal, home and mortgage insurance, underwriting fees, property taxes and more. Closing costs are often less for buyers because negotiations may require the seller to cover the majority. For sellers, closing fees are typically closer to 6% to 10%. First-time homebuyers might consider putting closing costs on the table as you negotiate your home purchase agreement. If you’re able to get the seller to take on some or even all of the home closing costs as a condition of purchase, you can save more money for items like a home inspection or furnishings for your new home.

Still, sellers don’t always agree to these terms, so you need to be aware that you might have to pay this extra money yourself. There may also be opportunities to include home closing costs in the mortgage. Check with your lender to see what those options are and how they would affect your monthly payment. To learn more about closing costs, talk with one of our trusted home lenders at Rivers Edge Bank.

First-Time Homebuyer’s Guide: Loans, Programs & Closing Costs

Purchasing your first home is a milestone experience that offers stability, equity and the freedom to create a space you love. While purchasing a house may seem like a distant dream, it can be more achievable than you think. By researching different home loan types, taking advantage of assistance programs and seeking professional first-time homebuyer guidance, you can overcome the challenges and make your dream home a reality.

Home Loan Types For First-Time Homebuyers

Depending on your credit score, income level, how much you can afford to pay per month and how large of a down payment you can make, there are several home loan types tailored to first-time buyers. Some even require no down payment, meaning you could be in your dream home before you know it! Options to be aware of include:

• Conventional loans
• Conventional loans specific to first-time homebuyers
• Government-backed loans
• Federal Housing Administration (FHA) loans
• U.S. Department of Veterans Affairs (VA) loans
• U.S. Department of Agriculture (USDA) Rural Development loans

Rivers Edge Bank offers a variety of mortgage loans to help you with a smooth home buying process. See all loan opportunities on our website!

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First-Time Homebuyer Closing Costs & Assistance Programs

If you’re struggling to save up for a reasonable down payment, various government and non-profit organizations offer assistance. These programs can provide grants or low-interest loans to eligible homebuyers who meet income and location requirements. Find programs in your area by visiting the National Council of State Housing Agencies or the National Homebuyers Fund.

To aid with other upfront expenses, like home closing costs, programs are available to help reduce the immediate financial impact of purchasing a home. Look for local and state housing finance agencies or non-profit organizations that provide closing cost assistance for buyers. Another helpful tool to guide first-time homebuyers is an escrow account.

Understanding The Benefits Of Escrow Accounts

Escrow accounts provide a secure way to manage property taxes and insurance, simplify budgeting and ensure timely payments. Understanding escrow sets the tone for a responsible and transparent experience, whether you’re a first-time buyer or seasoned pro.

What Is An Escrow Account On A Mortgage Loan?

An escrow account is a financial device where a neutral third party holds funds on behalf of two other parties until certain conditions are met. For homeowners, escrow specifically refers to the funds earmarked from your monthly mortgage payment to cover property taxes and insurance, shielding you from large annual payments and your lender from lien risks. Escrow is typically established when you close on your home, so be prepared as a first-time homebuyer calculating closing costs to account for escrow. While escrow is often required for mortgages with a down payment less than 20%, it's not always mandatory. However, even if not required, maintaining an escrow account is a great budgeting tool and helps ensure timely payments for your property taxes and insurance.

Escrow Accounts: A First-Time Homebuyer’s Budgeting Tool

Escrow serves a multitude of purposes, each to the benefit of the homebuyer. By contributing regularly to an escrow account, you can establish a consistent, predictable budget and avoid the burden of large, one-time payments. Your tax and insurance obligations are taken care of with no extra work or worry on your part. Here’s an at-a-glance first-time homebuyer’s guide to using your escrow to your advantage:

• Protects From Financial Shocks: Property taxes and insurance bills can be big, unexpected expenses. By setting aside a portion of your monthly payment into escrow, you avoid scrambling for a large sum of money when those bills come due.
• Facilitates Smooth, On-Time Transactions: Escrow also safeguards you from financial risks like missed payments or underfunding and ensures smooth transactions between the parties involved. You send one payment to your lender, and the lender uses the funds in your escrow account to pay your property taxes and insurance bills directly. This eliminates the hassle of remembering due dates and ensures timely payments, saving you from the risk of late fees or penalties for missed payments.
• Enables Predictable Budgeting: With a set monthly payment that includes your property taxes and insurance, budgeting becomes easier. You know exactly how much you need to allocate each month for your housing costs. Even when your lender no longer requires an escrow account, you might want to keep your account to continue benefiting your budget.

Calculate Your Mortgage Payment Today!

Hopefully, you’re feeling more confident about navigating the final steps in the home buying process now that you know what to expect as a first-time homebuyer with upcoming closing costs. One more way Rivers Edge Bank can support you is with our free tool to calculate your mortgage payment. Add in your anticipated expenses, including the down payment, home insurance and approximate property taxes, as well as your estimated interest rate. By calculating your mortgage payment, you get to see what your monthly payment could look like, accounting for principal, interest and escrow paid throughout the life of the loan. To learn more about current interest rates or what you may be eligible for, contact your local Rivers Edge Bank.

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Questions On The Home Buying Process? Reach Out To Your Local Lenders At Rivers Edge Bank!

Remember, the path to homeownership is paved with determination and planning. Rivers Edge Bank is happy to serve as a resource and guide for first-time homebuyers getting ready to close on this exciting chapter. Explore our financial literacy library for more tips to navigate the home buying process, or reach out to our local lenders to discover home loan options and discuss how your loan will impact your home’s closing costs.

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