Many homebuyers think that saving for their down payment is enough to buy the house of their dreams, but what about the closing costs that are required to obtain a mortgage?

By law, a homebuyer will receive a loan estimate from their lender 3 days after submitting their loan application and they should receive a closing disclosure 3 days before the scheduled closing on their home. The closing disclosure includes final details about the loan and the closing costs.

However, is waiting until you are in a contract the right time to understand the amount of money that you will need to complete your home purchase?  And what are closing costs anyway?

According to Trulia:

Closing costs are lender and third-party fees paid at the closing of a real estate transaction, and they can be financed as part of the deal or be paid upfront. They range from 2% to 5% of the purchase price of a home. (For those who buy a $150,000 home, for example, that would amount to between $3,000 and $7,500 in closing fees.)”

Keep in mind that if you are in the market for a home above this price range, your costs could be significantly greater. As mentioned before,

Closing costs are typically between 2% and 5% of your purchase price.

Trulia continues to give great advice, saying that:

“…understanding and educating yourself about these costs before settlement day arrives might help you avoid any headaches at the end of the deal.”

Best Practice

Work with your lender to create a buying strategy that fits your family budget.  And since underwriters are the only ones that can approve or deny a home loan, obtain Credit Approval instead of just a pre-qualification or pre-approval.  And then work with your real estate professional that understands your buying strategy and find that perfect home.  Your home purchase will go smoothly and you’ll have peace of mind knowing that you have the loan and now just need to find the home and most importantly, you’ll have no surprises at the close of escrow.