When shopping for a new home, buyers often take into account a variety of out-of-pocket expenses that they can anticipate, from the earnest money deposit to the down payment to the purchase of new furniture and accessories after the move. However, one of the more mysterious aspects of home buying for most buyers is the home closing cost breakdown.

How much can you anticipate paying in closing costs? Who pays which costs? What charges are involved? Is there a difference in closing costs when buying a new home rather than a resale? We’re here to answer all of these questions and more, so that you have a better idea of your potential closing costs — and can budget more effectively for your home purchase to make sure you buy a home you can afford.

What are Closing Costs?

The term “closing costs” is an umbrella mortgage term you should know that encompasses a variety of fees, commissions, and other costs associated with buying or selling a home. Costs can include everything from mortgage-associated payments and fees to taxes, as well as professional fees and commissions for services provided during your purchase. Here are just a few of the costs you can expect to see:

• Mortgage origination fees

• Escrow or Settlement Fees

• Prorated Property Taxes

• Government Recording Fees

• Broker Commissions

Some of these costs will be flat fees that are predictable and should be included in the up-front loan estimate your lender provides within three days after you apply for your mortgage. Other costs may vary according to what day of the month you are scheduled to close or due to specific issues that come up during a home inspection or appraisal.

What Fees do You Pay When Buying a New Home?

When you are buying a new home from a builder, there may be some fees that would normally be paid by the seller if you were buying an older home, including title insurance and transfer fees. However, many builders offset this with generous incentives to help make closing costs more affordable.

If you are buying a home in a new neighborhood or in a neighborhood that is almost full, you may want to check for additional incentives. These are sometimes provided as introductory or celebratory offers. In addition, you may receive discounts if you are using the builder’s in-house lender.

Who Pays Closing Costs When Buying a Home?

Buyers pay most of the costs associated with closing on a home because so many of the costs are tied to the mortgage process. Origination fees, appraisal fees, prepaid items, and more — all of these are required by the lender and therefore become the obligation of the buyer.

If you are buying new home construction, many builders will offer incentives to offset these fees and costs if you are willing to use their in-house lender. Because they have ties to the lender, they can negotiate adjustments to these fees.

Often, the stated cost reduction is 2-3%, but it is important to determine what that 2-3% is applied to -- the cost of the home or the amount borrowed. Here’s an example of the difference this can make:

• You buy a home that costs $300,000. With a 20% down payment, you are financing 80% of the home’s cost, or $240,000.

• A 3% reduction based on the cost of the home is $9,000 off of your closing costs. A 3% reduction based on the amount of the loan is $7,200. It is still a generous discount, but a hefty $1,800 additional out of pocket.

As with all of the costs associated with your home purchase, it is a good idea to get multiple estimates and find out which loan scenario works best for you. Just don’t forget to factor in closing costs when comparing loan terms.

Can you Save Money When Building a New House?

There are a variety of ways that a new home saves you money, offsetting any potential increases in closing costs. The home building process and the way in which new home communities are designed can save you thousands of dollars over the life of your mortgage. These include:

• Reduced maintenance costs and builder warranties, offering peace of mind, and making ownership more affordable.

• Built-in neighborhood amenities which are included with your home purchase, helping you avoid fees associated with outside recreational and activity facilities.

• Smart-home design options that can streamline your home’s operations and upkeep as well as save thousands through increased energy efficiency.

• Customization options during the build process can save you thousands over resale renovations.

Crunching the numbers for your new home purchase? You’ll find all of the mortgage resources you need at our website, including mortgage calculators and lending options. Questions? Chat with a mortgage advisor and learn more about the process and what you can expect.

Contributed to Your Home blog by Christy Murdock Edgar

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Published 10.21.19