The down payment and closing costs are two of the biggest concerns people have when buying a house in Washington. And it’s easy to understand why. These two expenses can add up to thousands of dollars, and they typically have to be paid up front on closing day.
In a previous article, we offered some tips to help you prepare for the closing process when buying a house in the state of Washington. Today, we’ll focus on the costs associated with this process, and what you can do to prepare for them in advance.
How to Prepare for Closing Costs When Buying a Home
The term “closing costs” refers to the various expenses you need to pay when buying a home. The amount can vary based on the purchase price of the home, the type of loan you are using, and the location of the property.
In the state of Washington, the home buyer’s closing costs typically range from 2% to 5% of the purchase price.
As of summer 2023, the median home price in Washington was around $580,000. Using the range mentioned above, this means the average closing costs for home buyers range from around $11,600 – $29,000.
Many mortgage programs available these days allow home buyers to use gift money from a third party. Even so, closing costs represent a significant upfront expense and a potential hurdle. So it’s best to prepare for them early on, long before you start looking at homes.
Start saving money early in the process (like today).
When it comes to preparing for closing costs, the most obvious step is also the most helpful — start saving money. And the sooner you start, the better.
As mentioned above, the typical closing costs for a home buyer in the state of Washington can easily exceed $10,000. And for many people, saving up for that kind of expense can take months. So you’ll want to get started as soon as possible.
Unless you’re using a specialized mortgage program, like a VA loan, you’ll probably have to make a down payment as well. This gives you even more incentive to create a home-buying fund.
One of the best ways to save up for closing costs is by creating a separate bank account for that very purpose. You can even automate your savings to make it even easier. For example, you could set up a recurring transfer from your checking account to savings account each month.
Most banks and credit unions offer this type of feature. It’s often referred to as an “automatic savings plan.” This will help you save money without even thinking about it, which is often the best-case scenario.
It also helps to cut back on unnecessary expenses, as much as possible. Anything you can do to increase your monthly savings contribution will bring you one step closer to your ultimate goal, which is homeownership.
Use your loan estimate as a guide.
Home buyers who apply for a mortgage loan in the state of Washington typically receive a document known as the “Loan Estimate.” This three-page form provides you with important information about your loan. It includes the estimated interest rate, monthly payments, and total closing costs.
It’s called a “loan estimate” because the exact amount you pay on closing day might be slightly different. Even so, this document serves as a helpful guide for planning and budgeting purposes.
But don’t wait until you receive your loan estimate to start saving money. There’s usually not a lot of time between the initial mortgage application and the actual closing day. So you want to start saving as soon as possible, as mentioned above.
Worth knowing: While most mortgage lenders provide only a cost estimate, Sammamish Mortgage provides guaranteed closing costs. We guarantee not only the lender fees, but the costs of third-party service providers as well. So you’ll never encounter any surprises.
Consider asking the seller to contribute.
When you make an offer to buy a home in Washington, almost everything is negotiable. You can negotiate the sale price, the closing date, and other aspects of the transaction. You could also ask the seller to contribute money toward your closing costs.
In real estate jargon, this is often referred to as a seller concession or assist. The homeowner is conceding (or giving) something to the buyer to help seal the deal. You can make such a request simply by writing it into your purchase offer, with a dollar amount or a percentage of the sale price.
Just know that the seller is not obligated to contribute money towards your closing costs.
In fact, these types of requests usually work best when the market slows down and sellers are more willing to negotiate. Asking for a seller concession in a highly competitive market can actually work against you. So make sure you discuss it with your real estate agent ahead of time.
Understand the rules regarding gift money.
Many of the mortgage programs available to Washington home buyers allow for gift money contributions. This is where an approved third-party donor, such as a family member, contributes money toward your down payment or closing costs.
But different loan programs have different rules and requirements for these types of gifts. So if this is something you wish to pursue, do the research to find out if it’s allowable. One common requirement is for the person donating the money to provide a signed “gift letter,” stating they do not expect any form of repayment.
Preparing for closing costs is an important step in the home buying process. So start early, be proactive, and stay informed to ensure a smooth and successful home purchase.