The home buying process can have a checklist that’s a mile long. From finding the right house to hiring an inspector, you’re likely to be consumed with writing checks, visiting properties and tackling an endless list of “to-do’s.”
There is one aspect of buying a home that’s commonly misunderstood and even forgotten about: closing costs. These are incorporated with every real estate transaction and prospective home owners should be aware of exactly what these fees include to ensure maximum preparedness. Here’s what to know:
What Are Closing Costs?
The bright side of closing costs is that they mean you’re almost at the finish line toward owning a home. The closing point of a real estate transaction happens when the title of the property you’re applying for is officially transferred from the seller to you, signaling the end of a sometimes arduous process.
The costs associated with closing consist of fees that are in relation to the entire home buying process. These can include paying:
- The title company for handling the paperwork
- Local government offices for deed recording
- Land surveyors
- And anyone else involved in the process
Buying a new home is likely to be one of the biggest purchases of your life and paying these fees will provide you with the peace of mind that all procedures are carried out efficiently—especially considering the amount of money and parties involved in this transaction.
How Much Are Closing Costs?
According to Zillow, home buyers typically pay an average of 2 to 5 percent of the purchase price of their home in the closing process. This figures out to an average of $3,700, but again, that can change depending on the price of your home.
It’s important to keep in mind that these final costs are going to be determined by your:
- Loan amount
- Mortgage option
- Type of property
- City, county or state of residence
After receiving your loan application, you’ll get a loan estimate, which will give you a ballpark figure of what the closing costs for your exact situation could potentially be. This will give you a good sense of what to expect. You can download our closing cost worksheet that breaks out all the closing cost fees.
- Origination Fee – Usually ranges from .5% to 1% of the loan.
- Credit Report Fee – Costs up to $75.
- Appraisal Fee – A single-family home costs between $450 – $650.
- Building Inspection – Inspector fees typically range from $450 – $1,000.
- Survey – If needed, usually costs $300 – $400.
- Legal Fees – Fees range from $600 – $1,000 depending on the attorney and the specific transactions.
- Title Search – Fees can vary greatly, but are approx. $125 – $200.
- Title Insurance – The cost can vary, but it usually about .5% of the purchase price of the home.
- Private Mortgage Insurance (PMI) – Usually required if your down payment is less than 20% of the purchase price. Fees can vary greatly, but the average premium is 2.5% of the mortgage, with a portion of the total premium due at closing.
- Homeowners Insurance – Approximately $600 and up.
- Prepaid Interest – Cost can vary greatly. Estimate the interest beginning from the day of closing to the end of the first month of ownership.
- Points – One point is 1% of your loan amount.
- Escrow Fees (or Closing fee) – This is paid to the title company, escrow company, or attorney for conducting the closing.
- Realty Tax Transfer – NH – .75% of Purchase Price, ME – .22% of Purchase Price, MA – N/A
- Recording Fees – Range from $150 – $400.
Some closing costs can be negotiable to a certain extent, such as attorney and commission rates, but many of them are customary fees.
A helpful tip: Scheduling a closing at the end of the month can actually help minimize your final expenses since your interest is based on the days remaining in the month.
Who Pays for Closing Costs?
The home buyer is usually the one to pay the most in closing costs. Buyers can ask the seller to pay for some of the fees, but it can affect the final negotiated price of the home. An incentive for the sellers to pay these fees is the tax deduction, but this is becoming rarer in the current real estate market.
There are some cases where the buyer can avoid these fees altogether, which is called a no-closing cost mortgage. This often comes with a higher interest rate from the lender, or the lender can include the closing fees in your total, final mortgage. This means you’ll end up paying interest on these fees, but you won’t have to worry about additional closing costs on top of your down payment and other expenses.
Whether you’re getting ready to close or just starting to research the home buying process, understanding the costs incorporated in closing on your new home will save you from a headache when it comes time to finalize the deal. You can ensure you are getting the best terms by working with an experienced, trusted broker, which will make the transaction process all the more streamlined.
Blue Water Mortgage has over 150 years of collective mortgage experience, with a wide variety of loan options available. As an independent firm, we work on behalf of our borrowers without strong held ties to any one lender. Our flexibility and experience helps you get your loan closed on time and with the best terms and lowest rates for you. For guidance, download our closing cost worksheet. Contact us today for more information on how we can find a mortgage loan that’s right for you.