Buying a brand new home is an exciting milestone in someone’s life, but there are often costs involved beyond just “buying” the home that often get forgotten, and for many buyers, these costs can be surprising and coming up with the money to pay these initial upfront cost can be stressful. 

As national home builders, K.Hovnanian® Homes is well acquainted with the difficulty closing costs can create when buying a new home – and that’s exactly why we often offer different solutions, options, and incentives for buyers to reduce their closing costs.

Reducing closing costs doesn’t just save you money, it can save you time as well, allowing you to start moving, living, and enjoying your new home sooner.

When Saving for a Down Payment, You Have to Save for Closing Costs Too

Closing costs are no small sum, often ranging in the thousands – so it’s absolutely crucial, especially if you’re a first time home buyer, to understand the upfront costs of purchasing a home so that you are financially prepared at the time of closing.

So whether it is a new construction home, previously owned, or to-be-built – in order to prepare for the big day and because these costs are upfront, you want to start saving as soon as possible for your closing costs, earnest money, down payment, property taxes and insurance.

What are Closing Costs? What Do They Cover?

Closing costs are the extra costs associated with buying a home that cover administrative services such as mortgage application, underwriting fees, home inspection, home appraisal, title search, insurance, taxes, and attorney fees that are incurred when purchasing a new home.

How Much are Closing Costs?

Generally speaking, closing costs equate to 2-5% of the home loan amount, but can vary depending on location, price of the home, and whether you are refinancing or purchasing.

Closing costs can quickly rise, for example, if your home loan is $300,000, and you’re closing cost is 5%, that’s $15,000 more you have to pay upfront in addition to your down payment. Reducing these costs can make a huge difference in your ability to buy a home.

Other Upfront Closing Costs

Earnest Money:

Earnest money, also referred to as a “good faith deposit,” is a required initial deposit when purchasing a new home.  The amount of the earnest deposit varies. The earnest money deposit accompanies the signing of a purchase agreement, and that deposit is credited towards your total down payment— or if paying cash, to the total amount due at closing.

Down payment

In addition to the earnest money, buyers also need to consider how much of a down payment they will assume. This can vary, however the national average is 6-12% of the sale price.

Buyers should understand that putting less than 20% down will also incur a Private Mortgage Insurance or PMI which will be added to your monthly payment until you have 22% equity in the home.

First time homeowners can take advantage of special financing options that require less of a down payment, making homeownership possible.

Taxes and Insurance:

At closing, buyers must prepay 6 months worth of property taxes plus their annual premium for homeowner’s insurance. According to Business Insider the average American pays $2,471 of property taxes each year.

Taxes vary widely based on the state’s tax rate and median home values.

Also, buyers may save and qualify for certain property tax exemptions such as Senior Tax Exemption, Veteran Tax Exemption, Disability Tax Exemption, and Homeowner’s Tax Exemption.

To have a better understanding, here is an example of the overall upfront costs when purchasing a $300,000 home.

HOME PRICE$300,000
UPFRONT COSTSLOW ESTIMATEHIGH ESTIMATE
Earnest Money (1-5%)$3,000$15,000
Down Payment (6-20%)$9,000$60,000
Closing Costs (2-5%)$6,000$15,000
Prepaid Taxes + Insurance$2,500$2,500
Total Estimated Upfront Costs$15,000$92,500

Do Buyers Always Pay Closing Costs?

The short answer is no, not always. Some closing costs can be negotiated with the seller, or oftentimes with new construction homes, the home builder will offer buyer incentives towards closing costs.

Who Pays Closing Costs?

Both the buyer and seller pay for closing costs, but typically, the buyer pays more.

Closing Costs Covered by Buyers:

A home buyer is likely to pay between 2% and 5% of their loan amount in closing costs which covers:

  • mortgage application
  • title search
  • taxes
  • attorney fees
  • insurance
  • underwriting fees
  • home appraisal
  • home inspection

Closing Costs Covered by Sellers

The seller could pay 5% to 6% of the sale price which covers:

  • real estate commissions
  • title insurance
  • taxes & fees
  • any other seller concessions

Reducing Closing Costs When Building or Buying a New Home

Family Buying a New Construction Home

To alleviate the strain of upfront closing costs, there may be ways to save on closing costs when buying a new home. You have options, shop around for your mortgage lender! 

Just like pricing varies from one store to the next, so do closing costs and fees from lender to lender. The heart of your closing costs savings can be found on the loan estimate within the section labeled “Services You Can Shop For.”

A variety of fees and services can be negotiated to save you time and money.

When Building or Buying a New Construction Home

Many home builders have their own in-house mortgage companies or special arrangements with lenders to allow special financing options or create incentives that may not be so readily available with an outside lender.

When building or buying a new construction home, closing costs are often incentivized and can be reduced, negotiated, or, in some cases, even paid for by the home builder when using their in-house lender or mortgage company.

Building your dream home with K. Hovnanian® Homes is a perk in itself, and using our financial services is not only convenient, but can save on upfront costs when buying a new construction home!  In addition to closing costs incentives, K. Hovnanian® American Mortgage, LLC™ promises each buyer accurate terms, exceptional service and a timely commitment.

Alternative/Additional Ways to Reduce Your Closing Costs on a Home

Seller Contributions: In today’s challenging housing market, sellers may be more anxious to make a deal. It never hurts to ask them to contribute to the closing costs. 

Apply for Closing Cost Assistance:  Depending on your income, you may qualify for loans or grants from nonprofit, lenders or local governments which can help with the initial closing costs.

No-Closing Costs: If you’re short on cash, consider rolling your closing costs into the loan. Keep in mind, this will increase your monthly payment–but save upfront costs.

Close at Months End:  In order to reduce the amount you owe in interest at closing, schedule your closing for later in the month. This may save you hundreds on the upfront costs.

Discounts and Rebates:  Banks want your business. Oftentimes, banks will offer incentives towards closing costs if you choose them for your home loan.

How K. Hovnanian Homes Helps Home Buyers Reduce Closing Costs & Move into Their New Home Faster

When you purchase or build a new construction home with K. Hovnanian Homes, you can take advantage of various incentives and discounts on closing costs to help you save on the upfront costs of your new home.

So if saving for the upfront costs of a new home is a stretch, consider K. Hovnanian® American Mortgage, LLC™ for your lender. Buy a new home with K. Hovnanian during our closing costs promotion, and save!   

Want to know more? Contact Us Today to learn how K. Hovnanian Homes can help you save time and money on building or purchasing a new or move-in ready home, or use our home search to Find a K. Hovnanian Community near you!

Last Updated on May 30, 2024