If you’ve been looking at houses for sale, you’ve likely taken the early step of figuring out how much home you can afford—and how you’ll pay for it. Typically, it is the down payment that is the biggest financial barrier to overcome, so if you’ve been budgeting and saving towards your goal, good job!
But did you factor in closing costs?
With the big numbers involved in home sales, it’s easy to forget about the little ones that you’re also responsible for. Closing costs can add up, so it’s important to know to factor these in when calculating your total upfront costs. This guide will help you navigate some of the closing costs that you may be responsible for, and what you can expect.
Before you can celebrate your new home, you’ll need to survive the closing.
What Are Closing Costs?
Closing costs are additional fees related to the entire real estate purchase that will be, as their name implies, settled at the closing table. The actual expenses you pay may differ in name and structure depending on your location, but typical costs include:
- Origination fees from lender
- Appraisal fee
- Title insurance and title searches
- Homeowner’s insurance
- Private mortgage insurance (if applicable)
- Attorney fees
- Recording fees
- Escrow fees
- Discount points
Who Pays Closing Costs?
While the above list may be intimidating, the buyer is not necessarily responsible for all closing costs. Part of negotiations with the seller often includes deciding how to apportion out some or all closing costs.
There are certain loan types, like a no-closing-cost mortgage, that will allow you to bundle the closing costs into the total loan, meaning you’re not on the hook for any charges on the day of closing. The downside to this structure is that you’re still paying these costs, just over a longer life—where they are accumulating interest.
Prepare for costs in advance to ensure that everything runs smoothly at closing.
How Much Are Closing Costs?
Again, your location will influence the total amount you have to pay, as will the price of the home. Most buyers find that their closing costs are between 2 and 5% of the total purchase price of the property.
Expect loan origination fees to be around 1%, but you can also negotiate that the bank cover certain costs. For appraisals, the average price in most areas is between $300 and $400. Whether you have to pay for particular home insurance will depend on your location, and you’ll be responsible for private mortgage insurance if your down payment was less than 20%.
How Do You Find Out Costs Before Closing Day?
With recent changes to the CFPB’s requirements for lenders, you’ll receive a loan estimate from your lender that will detail estimated closing costs. Your lender will also need to send you a statement at least three business days before the closing date that finalizes the total fees you’ll be expected to pay.
Shopping for home mortgages early in the process will help you understand the types of fees your loans will carry with it. Answer a few questions here, and a home lending expert will contact you with options suitable to your situation.