Closing Costs for Home Buyers

For many home buyers, especially first time home buyers, buying a house is an exciting but daunting task. There are many costs to consider and it’s important to plan ahead. Most home buyers consider how much they need to save for a down payment but closing costs sometimes catch them by surprise. To ensure you’re ready for each step of the home buying process, you need to understand the ins and outs of closing costs for home buyers.

What Are Closing Costs?

Closing costs refer to the fees and expenses that must be paid at the time of closing on a home. These costs can vary depending on the location and price of the home, as well as other factors such as the type of loan and the lender.

What Is Included in Those Fees and Expenses?

There are some common types of closings costs that home buyers will see in most transactions.

Loan Origination Fees

Loan origination fees are charged by the lender to cover the cost of processing the loan. These fees can range from 0.5% to 1% of the loan amount, and are typically paid at closing. Your lender will provide this information during your early conversations but I encourage home buyers to ask a lot of questions and get very specific information about associated costs.

Appraisal Fees

Appraisal fees are charged by a third-party appraiser to determine the value of the property being purchased. These fees can range from a few hundred to a few thousand dollars, depending on the location and size of the property.

Title Search and Title Insurance Fees

Title search and title insurance fees are charged to ensure that the property being purchased has a clear title and is free of any liens or other encumbrances. These fees are dependent on the location and price of the property.

Attorney Fees

Attorney fees may be charged if an attorney is involved in the closing process. These fees can vary depending on the complexity of the transaction and the attorney’s hourly rate.

Prepaid Expenses

Prepaid expenses include items such as property taxes, homeowners insurance, and mortgage interest that are paid in advance at closing.

What Is a Typical Amount to Expect?

Understanding what closing costs include is important, but knowing what you’ll need to budget to cover them is really important, as well. Closing costs are typically between 2% and 5% of the total purchase price of the home.

Can Closing Costs Be Minimized?

Home buyers may be able to minimize some closing costs.

One option is to negotiate with the seller to cover some or all of the closing costs. Whether that is an option will depend on the competitiveness of the real estate market and the attention the home is getting from other buyers.

Another option for home buyers is to shop around for lenders and compare loan estimates to find the best deal on closing costs.

How Can You Be Prepared?

It’s a good idea for home buyers to budget for closing costs early on in the home buying process, so that they are not caught off guard when it comes time to close on the property. Having conversations with a lender up front is the best way to plan ahead.

Closing costs are an important aspect of the home buying process that home buyers should be aware of. These costs can add up, but can be minimized through negotiation, shopping around for lenders, and budgeting early on in the home buying process. By understanding the different types of closing costs and how they can impact the overall cost of purchasing a home, home buyers can make informed decisions and avoid any surprises at closing.