Closing Costs: What to Expect

Buying a home is an exciting milestone, but it comes with several financial considerations, including closing costs. Understanding what these costs entail can help you prepare and avoid any last-minute surprises. Here's a breakdown of what to expect regarding closing costs.

What Are Closing Costs?

Closing costs are fees and expenses paid at the final stage of the homebuying process, also known as the “closing.” These costs cover various services required to finalize your mortgage and transfer ownership of the property. On average, closing costs range from 2% to 5% of the home’s purchase price, though the exact amount can vary based on your location, lender, and loan type.

Common Closing Costs Breakdown

Here are the typical fees you might encounter:

1. Loan-Related Fees
   1. Origination Fee: A fee charged by your lender for processing your mortgage application, usually 0.5% to 1% of the loan amount. Consider working with a lender that charges $0 in lender fees!
   2. Discount Points: Optional upfront payments that lower your mortgage interest rate.
   3. Credit Report Fee: A small fee for pulling your credit report.
2. Appraisal and Inspection Fees
   1. Appraisal Fee: The cost of a professional appraisal to determine the home’s value.
   2. Home Inspection Fee: While not always included in closing costs, a home inspection is highly recommended.
3. Title and Escrow Fees
   1. Title Search Fee: Covers the cost of researching the property’s ownership history to ensure it’s free of liens or legal issues.
   2. Title Insurance: Protects you and your lender against future title disputes. This one-time cost ranges, depending on your home’s value.
   3. Escrow Fee: Paid to the escrow company or attorney managing the closing process.
4. Taxes and Government Fees
   1. Property Taxes: You’ll likely need to prepay a portion of property taxes, depending on the time of year.
   2. Recording Fees: Charged by local government offices to record the deed and mortgage documents.
5. Prepaid Costs
   1. Homeowners Insurance: Most lenders require you to pay the first year’s premium upfront.
   2. Mortgage Insurance: If your down payment is less than 20%, you may need to pay private mortgage insurance (PMI) upfront.
   3. Prepaid Interest: Covers the interest on your loan from the closing date until your first mortgage payment is due.

What Type of Loan Are You Looking For?

Can Closing Costs Be Negotiated?

Yes, some closing costs can be negotiated or reduced:

1. Shop Around: Compare lenders and service providers to find the most competitive rates.
2. Ask the Seller for Concessions: In some cases, sellers may agree to cover part of your closing costs as an incentive.

How to Prepare for Closing Costs

1. Budget Early: Estimate your closing costs during the pre-approval process so you can save accordingly.
2. Review the Loan Estimate: Your lender will provide a Loan Estimate document outlining expected closing costs.
3. Understand the Closing Disclosure: Three days before closing, you’ll receive a Closing Disclosure with the final cost breakdown. Review it carefully and ask questions if anything seems unclear.

Final Thoughts

Closing costs are an essential part of the homebuying process, and understanding them can make your journey smoother. While the fees might seem overwhelming at first, proper planning and working with a knowledgeable lender can help you navigate them with ease.

Do you have questions about Closing Costs or need help finding the right mortgage? Schedule a consultation to speak with a loan officer. We’re here to simplify the process and get you the best deal possible.