Understanding Closing Costs
True to its name, closing costs are what buyers pay for when the time comes to close on a purchase of a home. These fees are related to legal documents, loan application, and title preparation. They refer to all of the taxes, fees, and costs required to close a real estate transaction. Who pays what varies from state to state and may also differ within a state. (Iowa is the only state that does not authorize lenders’ and owners’ title insurance premiums to pay for closing costs – just so you know.)
These are the average closing costs for a $200,000 in Iowa as stated in Bankrate’s website. Please take note that lender fees vary so make sure to check with your lender about the different costs that will be applied to your purchase.
Paying for closing costs is easy as a seller. The costs are just taken right out of your proceeds. Or, you write a check at closing if you’re upside down. Buyers have a couple of options to pay for closing costs.
A buyer might decide to pay for their closing costs out of pocket.
Your lender might have a program that helps assist with closing costs. (Let me know if you want to be connected with a lender that has access to these programs!)
Or, you might ask the seller to pay money toward your closing costs. This sounds like a great option, right? I definitely support “free” money. But, in this case, it’s really not free. Actually, it’s money that you’re ultimately paying interest on for the life of the loan. Here’s how it breaks down:
Let’s pretend you’ve just negotiated a price of $200,000 with a seller but have asked them to contribute $3,000 toward your closing costs. That seller essentially agreed to $197,000 purchase price which is their “net price”. If you would have offered $197,000 with NO closing costs – they would still be getting the same amount for their house. See how you end up paying your own closing costs?
Every real estate transaction is different and you’ll want to discuss the details with your real estate agent to make sure that you have the best guidance for your particular situation. It should go without saying, but in case you’re new to my blog – we are happy to help with anything real estate related! Give our office a call at 515-608-8868 and we’ll help you figure it out.