Understanding the purpose of closing costs

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Posted By | January 15, 2021 | Articles

Paying closing costs is just one of the parts of buying a home in New Jersey. People who understand the purpose of closing costs and their options for paying can budget their money accordingly.

Factors including a person’s credit score, the property tax rate in the area of the new home and the type of mortgage loan in question, can all influence the bottom-line price of closing costs.

Breakdown of closing costs

Closing costs cover a variety of different fees upon the transferal of property from one owner to another. According to Zillow, some of the fees that closing costs cover include the following:

  • Costs to pay an appraiser to assess a home’s value
  • Costs to pay an inspector to assess a home’s condition
  • Costs paid for escrow for individuals charged with overseeing the closing process
  • Costs paid for a lender to process buyer applications
  • Costs for private mortgage insurance (PMI) if a buyer’s down payment is less than 20 percent of the home’s price
  • Costs paid to transfer taxes from seller to buyer

Help to pay closing costs

Closing costs can create a significant expense for homebuyers. Through careful and strategic planning, people can reduce the number of closing costs owed, but rarely get rid of it entirely. The New Jersey Housing and Mortgage Finance Agency remind people of the NJHMFA Down Payment Assistance Program. This program connects homebuyers with lenders who provide assistance for qualified, first-time homebuyers.

People must meet certain qualifications before receiving approval. Once qualified, people can work with up to three participating lenders. If approved, people may receive up to $10,000 for assistance with closing costs and down payment.