What Exactly Are Closing Costs, and How Do I Budget for Them?

You found your home, you've got the mortgage lined up and the finish

line is in sight, but then you hear about something called closing costs.

Start asking yourself, what exactly are these extra fees

and how do I prepare for them?

So don't become a last minute stressful surprise.

Well stick with me today 'cause I'm gonna give you the tolls that you need

to handle this part of the process.

Hey there.

Welcome back to your Daily Financially Confident Christian.

I'm Ralph and it's great to be with you again.

This is the show that helps you answer that question, how can I become a

financially confident Christian?

And we're continuing our series dealing with the stress of money worries.

In the last few days, we've been talking about the home buying process,

and we're deep into that topic of home ownership, and that is a significant

financial decision for most people.

And if you've been following along, you're doing amazing work.

You've assessed your affordability, you've prepared financially, and even maybe

started navigating the mortgage process.

But today we're gonna take it a step further and we're gonna talk about a part

of the home buying process that often surprises people and can be a significant

source of stress right at the end.

And that's called closing costs.

Think about it.

You've saved for the down payment.

You've got yourself already.

But what about those extra fees?

So let's tackle that question today.

Don't let closing costs catch you off guard.

How do I understand?

And more importantly, how do I prepare for them?

Maybe you know this feeling all too well.

You focused intently on saving for that down payment and it took years and months

of struggles, which is a huge goal.

And then you realize there's a whole other set of expenses like

this down payment was enough.

And then you've got this, this closing cost to cover at, what

do we call the closing table?

These are things like loan origination fees, appraisal fees, title insurance.

There's a whole list of these things, legal fees, even prepaid

property taxes and insurance.

And the struggle here is the potential for a large, unexpected

financial burden, right?

When you thought you were finally ready, you thought you were ready to move into

this new home, and all of a sudden the lender says to you, Hey, but guess what?

Don't forget about your closing costs.

Not knowing what these closing costs are, how much they're gonna be, or

how you're gonna budget for them.

Let me just tell you right now.

That creates significant anxiety and for many people, it makes the

end of the home buying process feel incredibly stressful potentially.

And I hate to say this, even jeopardizing the purchase, if you haven't saved enough.

Unfortunately, I've seen deals fall through at the end because you didn't

have enough money for closing costs.

But here's the thing.

You need to understand this from the beginning.

Closing costs are normal and they're an unavoidable part of buying a home.

It's just part of what we have to do.

And being surprised by them at the last minute goes against that principle

of careful financial planning.

And as we talked about the last few days, counting the cost.

Remember that builder analogy from Luke chapter 14 about building

the tower and counting the cost.

That cost includes all the cost to finish the tower, not just the foundation.

Preparing for these closing costs is an act of diligent stewardship.

That's what the show is all about.

We need to anticipate all the necessary expenses involved in the

transaction to ensure that you have the resources ready to finish it.

It's about having foresight and managing God's resources wisely for the entire

process, not just the most obvious part.

For a lot of people, the most obvious part is, Hey, let's go shopping.

Let's go buy a house.

Oh, now we need down payment money.

And then you don't think about, yes, that's right, but you're also going

to need money for those closing costs.

So now you're saying, Ralph, great, you had me.

Now all of a sudden you're dropping something else on this.

How do I prevent closing costs from becoming this last

minute stressful surprise?

Well, here's what I'm gonna tell you as normal.

It starts with educating yourself on what closing costs typically

include, and you can get an estimate.

In fact, there's a requirement that they give you a good faith

estimate as to closing costs.

Ask the realtor to get you this information and get

it early in the process.

That way you can actively include that in your savings goal

along with your down payment.

So even when you're starting to think about, am I ready to buy a house?

And you're start thinking about that down payment, start thinking

about those closing costs as well, because that proactive approach

is gonna ensure you got the total funds needed, ready for closing day.

You're not gonna get that.

Call from the settlement attorney that says, oh, by the way, don't

forget to bring a check for $25,000 for your closing costs.

So here's your one action step for today, specifically designed

to help you understand and more importantly, prepare for closing costs.

I want you to start by educating yourself.

Learn what closing costs are.

Spend about 15 or 20 minutes and research common closing costs in your area.

Talk to a realtor, talk to a lender and say, Hey, I just don't

understand what this is all about.

Can you give me a breakdown of these things?

And I've said before.

These typically include things like loan origination fees.

You might heard the term called points, appraisal fees for your home title,

insurance attorney's fees recorded.

Listen, when you see a settlement sheet, there's a list of about 15 or 20 things.

And a lot of times the lender's gonna require you to prepay property taxes

maybe for even a year in advance.

And also your homeowner's insurance premiums.

They wanna make sure that you've got the resources ready so you don't default

on this loan right after you get it.

So make sure you're ready.

Get that early estimate.

So when you're seriously talking about a mortgage loan, go, you know,

after that pre-approval, start to look at, ask them for a loan estimate.

Like I said, this document's required by law and it details the estimated

interest rate, the monthly payment, and an estimate of all those closing costs.

And this is really your first concrete idea of what to expect.

Now, here goes into the planning part.

You've got to plan to include those closing costs in your savings goal.

Add that estimated amount as closing costs to your down payment.

We talked about that in episode 1 71, Adjust your savings plan to aim for this

total amount needed by the closing day.

So that you're not surprised by this, you know you're ready, you've

got the, down payment money and you've got your closing costs ready.

And now you might be saying, Ralph, okay, why does this help?

Because here's the thing.

You are going to struggle.

There's going to be stress, there's gonna be last minute mortgage things

that the last stress you need is to get a call from the, paralegal

who's working on the closing and say, oh, by the way, we made a mistake.

Your closing costs are gonna be this much more, and you're, you're scrambling.

You're like, I've already paid for this.

I, I bought furniture.

You know, I've got the, the movers ready to go.

I wasn't expecting this.

Where am I gonna get this money?

But if you do what I've talked about, you plan ahead.

It's going to significantly reduce the stress of that.

You're gonna educate yourself.

Maybe there's some things in that that you can shop around

and get a better price for.

And it's gonna replace that unknown with concrete numbers and you can include

that in your savings goal so that you don't have that last minute scramble.

And you can go to closing with a smile and confidence and peace,

knowing all the costs are covered.

And the next step is hand you the keys.

Welcome to your new home.

Let's pray together now.

Father God, we just thank you for providing for all of our needs.

Lord, we confess that the various costs involved in buying a home.

like closing costs can feel confusing and stressful and

just absolutely overwhelming.

Please grant us clarity, Lord, and diligence as we educate ourselves

on these expenses and really work to get those early estimates.

And overall, Lord, we ask you to help us be wise stewards by including those

closing costs in our savings goal, and guide us in preparing thoroughly for the

financial realities of home ownership.

Ensuring we can approach closing day with peace just knowing that all

the necessary funds are in place.

And we ask this as always, Lord, in confidence.

In Jesus' name.

Amen.

Listen, don't let closing costs catch you off guard.

Understand what they are.

Get an early estimate and include them in your savings plan.

'cause this is the key to a smooth and peaceful closing day.

You are moving towards freedom.

If this episode helps you, I'm gonna encourage you to share it

with somebody you know who might be going through the same process.

You can find resources and connect with our show at our website

that's at financially confident christian.com, and I've got a

special gift for you on your journey.

Go to financially confident christian.com/master and get a free copy

of my book, mastering Your Finances.

It's a great book.

It's a powerful read, designed as a point to help you break that cycle of

financial shame and step into confidence.

Again, go to financially confident christian.com/master.

Now, tomorrow we're gonna move into the final stage of the home ownership process.

And that's how to budget for the ongoing cost.

A lot of people don't think about this.

They got through the mortgage, they got through the closing costs, they got moved

in, and now of a sudden it's like, wait a minute, I wasn't anticipating this.

So we're gonna talk about property taxes, we're gonna talk about

insurance and those unexpected repairs.

So your home remains a blessing because we don't want it to become a burden.

So you don't wanna miss that.

So make sure you join me tomorrow.

Now let's all go out there and be financially confident.

Christians, you can do this.

I have confidence in you.

Have confidence in yourself.

Stay financially savvy.

God bless you, and you have a great day today.