Buying your first home is exciting. It’s also one of the most stressful financial decisions you’ll ever make.
Here’s the problem though…
It’s common for first time buyers to walk into closing day completely unaware of what’s going on. They don’t know which fees to look out for and which ones can be negotiated. As a result, buyers often spend way more than they had to.
The good news? None of these pricey surprises are inevitable. Not one.
Here’s what you need to know before you walk into closing.
What You’ll Learn:
- Costs buyers didn’t know they had to pay
- Why you can never skip the one time Title Insurance premium
- Honest mistakes first time homebuyers make on closing day
- How To Not Sweat Closing Day
Hidden Costs Buyers Didn’t Know They Had To Pay
Here’s something no one tells first-time buyers.
Your home’s purchase price isn’t the only cost you’ll pay when you buy. In fact, closing costs are where many buyers get tripped up.
Bankrate keeps tabs on national averages when it comes to closing costs. As of this writing, they estimate the total will set you back $4,661.
Costs vary wildly from state to state though.
Typically, closing costs include:
- Loan origination fees
- Appraisal costs
- Inspection costs
- Recording fees
- Government fees
- One time title insurance premium
Ah yes… The one time Title Insurance premium.
It’s easily the most confusing line item on a closing disclosure. But it’s also one of the most important. Don’t gloss over it. Read on to learn why.
One-Time Title Insurance Premium
Title insurance protects the buyer’s ownership of the property for as long as they hold the title. Simply put, title insurance covers you in the event someone else comes back and makes a claim to your property.
With homeowners insurance, you’ll pay a premium every year to protect your house.
Title insurance only requires one payment. And that payment covers you for as long as you remain the owner on record.
That’s why buyers should budget for title insurance with every home purchase. Use a title insurance calculator to estimate the one-time title insurance premium before closing so there are no surprises.
It’s also another fee that many first-time buyers aren’t expecting. Make sure you have it accounted for before you close.
Expect to spend between 0.5% to 1% of your home’s purchase price on title insurance.
Closing Day Mistakes That Cost Real Money
Here’s a mistake first-time buyers make that can cost them thousands.
Not reviewing their closing disclosure early enough.
Closing disclosures are sent to buyers at least three business days prior to closing. That gives you ample time to comb through every little fee.
Instead, many wait until closing day to flip through it.
By closing time, it’s too late to negotiate fees or question charges that shouldn’t exist. Review your closing disclosure immediately.
Then compare it to the loan estimate you received during the application process. Don’t let any surprises pop up on closing day.
A few other costly mistakes first-time buyers make on closing day include:
- Skipping the final walkthrough
- Not shopping around for title services
- Forgetting escrow costs
- Showing up with the wrong funds
These mistakes are easily avoidable with a little preparation.
Why So Many First Time Home Buyers Regret It
Buyers who go into their home purchase blind tend to regret it.
A survey conducted by Guardian Service found that 66% of first-time homebuyers experienced unexpected issues once they bought their home. The average cost of these unforeseen problems exceeded $5,300.
61% of first time buyers even reported they would have negotiated for repairs had they been made aware of them.
That’s quite a chunk of change to not plan for.
But it doesn’t stop there.
Guardian Service also discovered that more than 25% of first time home buyers rated their financial knowledge as poor at the time of purchase.
Whether they underestimated repair costs, chose the wrong sized home or felt pressured to buy. Homebuyers who rushed into buying their first home were nearly 3x more likely to regret it.
Home buyers who do their homework enjoy the home buying process much more.
Walk Into Closing With Confidence
How can first-time buyers avoid these regretful situations?
Research, research, research. Study everything you can about your upcoming purchase before you close. Knowledge is power when it comes to home buying.
For starters, do your due diligence by:
- Getting pre-approved before you shop. Seriously. Pre-approval will save you from falling in love with homes you can’t afford.
- Understanding your closing costs. Sit down with your loan estimate and analyze every cost on the final closing disclosure.
- Budgeting for the Title Insurance Premium. It’s one of the most important fees you pay at closing. That’s because it protects you and your family’s ownership of the property for as long as you hold the title. Skipping coverage is NEVER a good idea.
- Hiring a quality home inspector. A thorough inspection report can save you thousands in repairs down the road. Plus, it gives you the opportunity to renegotiate on costs with the seller.
- Reviewing your closing disclosure as soon as you get it. You have three days to catch discrepancies. Use them.
- Negotiating with your seller. In some markets, buyers can ask the seller to cover closing costs. You’ll never hurt your chances by negotiating.
You get the point. Learn everything you can about your transaction before you finalize it.
Closing shouldn’t be the time you learn you have to pay for title insurance. You should know that weeks before.
Buyers who know what they are signing walk into closing with confidence. They aren’t panicked by unexpected fees. They know what protections they are getting for their money.
They also plan for every eventuality before it happens.
The Bottom Line
Closing day can be overwhelming, especially for first time home buyers. But knowing what to expect long before you’re seated at the closing table can make all the difference.
Your home purchase isn’t a race. Take the time to learn about every fee on that closing disclosure. Why does your lender require it? What happens if you don’t provide it?
Ask questions. Dig into details. Learn why you are paying for everything your lender tells you to.
You’ll thank yourself when you’re signing on the dotted line.
A recap of what you learned:
- Review your closing disclosure before closing day. Make sure all costs match up with your initial loan estimate.
- Budget for closing costs. Remember to include title insurance.
- Don’t neglect home inspection or final walkthroughs.
- Negotiate whenever possible.
- Have the right funds ready to go FIRST.
