If you’re buying a home in Utah, one of the biggest questions to answer before you start shopping is: How much money will I actually need to close?
Most buyers understand that they’ll need money for a down payment, but your down payment and closing costs are two different things.
As a general planning estimate, buyers may want to prepare for closing costs of roughly 2% to 3% of the purchase price, although every transaction is different.
For example, if you’re buying a $500,000 home in Utah, 2% to 3% would equal approximately $10,000 to $15,000 in closing costs, separate from your down payment.
So where does that money actually go? Let’s break it down.
1. Loan and Lender Fees
If you’re financing your home purchase, some of your closing costs will come directly from obtaining the mortgage.
Depending on your lender and loan program, these costs may include:
- Loan origination fees
- Underwriting or processing fees
- Appraisal fees
- Credit report fees
- Other lender-related charges
Every lender structures their fees a little differently, which is one reason we don’t like giving buyers one exact closing-cost number before they’ve spoken with their lender.
Your lender should provide an estimate early in the process so you can see what these costs are expected to look like for your specific loan.
2. Title and Settlement Fees
The title company plays a very important role in a Utah real estate transaction.
Part of your closing costs may include title and settlement services, lender’s title insurance if you’re financing the property, recording fees, and other costs associated with transferring and recording ownership of the property.
Title insurance is particularly important because it helps protect against certain problems involving ownership or title to the property.
While these aren’t necessarily the most exciting parts of buying a home, they’re an important part of making sure the transaction is completed correctly.
3. Property Taxes in Utah
Property taxes can sometimes be confusing for buyers, particularly when you’re purchasing a home in the middle of the year.
In Utah, property taxes are generally prorated based on the closing date.
For example, imagine purchasing a home halfway through the year. The seller owned the property for the first portion of the year, while you’ll own it for the remainder.
At closing, the transaction accounts for each party’s respective portion of the property taxes.
This is one reason your exact closing numbers can vary depending on when during the year you purchase the home.
4. Homeowners Insurance, Escrows and Prepaid Expenses
Depending on how your mortgage is structured, your lender may also collect money upfront to establish an escrow account.
Your escrow account is typically used to pay expenses such as:
- Property taxes
- Homeowners insurance
You may also have prepaid interest and an upfront homeowners insurance premium included in the amount needed to close.
After closing, property taxes and homeowners insurance are commonly collected as part of your monthly mortgage payment when your loan has an escrow account.
How Much Are Closing Costs on a $500,000 Home in Utah?
Let’s put all of this into a real-world example.
Say you’re buying a home in Utah for $500,000.
If you’re using 2% to 3% of the purchase price as a general planning estimate, you could be looking at approximately:
2% = $10,000
3% = $15,000
That means you might want to prepare for somewhere around $10,000 to $15,000 in closing costs, in addition to your down payment.
However, that doesn’t necessarily mean you’ll have to bring that entire amount yourself.
Can the Seller Pay a Buyer’s Closing Costs in Utah?
Yes, and this is where having a knowledgeable real estate agent and lender can make a big difference.
Depending on the market, the seller’s circumstances, your loan program, and the overall terms of the offer, we can often negotiate for the seller to contribute toward some or potentially all of a Buyer’s closing costs.
For example, imagine you’re purchasing that $500,000 home and your estimated closing costs are $12,000.
Instead of simply negotiating $12,000 off the purchase price, it may make more sense for your situation to negotiate a $12,000 seller contribution toward closing costs.
Why?
Because reducing the purchase price by $12,000 doesn’t necessarily save you $12,000 in cash at closing. A seller contribution toward allowable closing costs, however, can significantly reduce the amount of cash you need to bring to the closing table.
There are limits and requirements on seller contributions depending on the loan program and transaction, so this needs to be coordinated with your lender.
Closing Costs vs. Cash to Close
This is another distinction we think every Utah home buyer should understand.
Closing costs are not necessarily the same thing as your total cash to close.
Your cash to close can include your down payment, closing costs and other adjustments, minus things such as earnest money you’ve already deposited or applicable seller/lender credits.
That’s why we don’t want buyers simply thinking:
“I’m buying a $500,000 house, so I need X amount of money.”
We want to know the complete picture.
Before we start looking at homes, we like to work with the buyer and their lender to answer three questions:
What is your down payment?
What are your estimated closing costs?
What is the actual amount of cash you’ll need to close?
Once we know those numbers, you can shop for a home with a lot more confidence.
Buying a Home in Utah? Let’s Run the Numbers First.
The purchase price of a home is only one part of the equation.
If you’re thinking about buying a home in Northern Utah, Davis County, Weber County, Layton, Ogden, or the surrounding areas, we’re happy to help you understand the entire process before you start seriously shopping.
We’ll work alongside your lender to help you understand your down payment, estimated closing costs, potential seller contributions, and what you should realistically expect to bring to closing.
You don’t need to have everything figured out before reaching out.
That’s what we’re here for.
Thinking about buying a home in Utah? Reach out to Juli & Brett Real Estate. We’re happy to run through the numbers with you before you ever step foot in a house.