What Philadelphia Home Buyers Should Know About Closing Costs

What Philadelphia Home Buyers Should Know About Closing Costs

Purchasing a home in Philadelphia is a big commitment and the largest purchase a majority of people will make in their lifetime. When purchasing a home it is a smart plan to map out all of the costs of homeownership to ensure purchasing a home is “comfortably” affordable. One of the costs that can catch homeowners off guard is closing costs. Home buyers can spend most of their attention on the down payment, the purchase price, and qualifying for the mortgage.

What Are Closing Costs?

Some home buyers are not aware of what closing costs are. Though it is a standard part of every home purchase it is often overlooked.

Leron Grossman offers this information, “A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney’s fees. Many closing cost items are included as numbered items on the HUD-1 statement.  Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney’s fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country.”

Closing costs are any fees/charges to the homebuyer to finalize the mortgage loan and close on the paperwork and contract for the home purchase.

How Much Should a Philadelphia Expect to Pay?

The large lending entity Freddie Mac advises that homebuyers should expect to pay anywhere between 2% and 5% of the total home purchase price in closing costs. Freddie Mac and Fannie Mae set the standard for conforming traditional mortgage loans. A conforming loan is the most common type of loan utilized by homebuyers in America. Banks and other mortgage lenders set the majority of their loan products to these standards.

Let’s use a sample home purchase to give a little more insight into how much closing costs can be. Let’s use the average median home price of an American home which is $384,500. If you were to purchase a home at this price using the common closing cost estimate from Freddie Mac would cost you between $7,690 and $19,225. This is a large sum of money. Of course, a home priced lower would have a lesser closing cost fee, and more expensive homes, a larger one.

Preparing for Closing Costs

The best way to be prepared for closing costs is to know they are a cost associated with every home purchase. To more accurately calculate how much to expect to pay on closing costs potential homebuyers should first go over their personal finances to know what they can afford to pay for a home.

Financial experts advise that homebuyers utilize no more than one-third of their take-home income on the mortgage payment of their home. Finding out what this number is will give you an accurate look at your home-buying budget (the price of the home you can afford when plugging your maximum payment into a mortgage calculator). From this budget, you can better determine what you will need to make in down payment costs and closing costs. This will help you to find a home that is truly affordable to you.

Once you have discovered your affordable budget and are prepared for all the costs of purchasing a home, it is time for the fun part, home shopping! Grab your mortgage preapproval letter and get ready to find that perfect Philadelphia home!

For more information on available homes in the greater Philadelphia area, I am here to help. I am ready to help you find a home that meets your search criteria in a Philadelphia neighborhood that you love. Contact me any time with any greater Philadelphia real estate needs. Both buying and selling homes.