Whether you’re a first-time hom-ebuyer or on your second or third purchase, buying a home is an exciting milestone. However, closing costs are an important yet often overlooked aspect of the home-buying process. Understanding these costs can help you better budget for your home purchase. Below, we’ll cover the essentials of closing costs to help you on your home-buying journey.
Key Takeaways About Closing Costs
- Closing costs are fees paid at settlement, separate from your down payment.
- They typically range between 2% and 6% of your mortgage balance.
- You may be able to negotiate a seller credit toward your closing costs.
- Rolling closing costs into your mortgage is possible, but it increases your loan balance and interest.
What Are Closing Costs for Home-buyers?
Closing costs include fees, taxes, and administrative expenses associated with the sale of a home, paid by both the buyer and the seller. Generally, these costs range from 2% to 6% of your mortgage loan. For a $450,000 loan, expect to pay between $9,000 and $27,000. Lenders must provide a closing disclosure detailing these costs three business days before settlement.
How Much Are Closing Costs?
Closing costs vary significantly based on location. According to Assurance IQ, the national average is $4,243. States like California, New Jersey, and New York have the highest averages, exceeding $7,500. Conversely, Alabama, Arkansas, South Carolina, and West Virginia have the lowest, under $2,500.
The Breakdown: Closing Costs for Buyers
- Application fee: $300-$450
- Escrow funds: Varies (typically two months worth of tax and insurance payments)
- Home appraisal fee: $500-$800
- Home inspection fee: $200-$500
- Homeowners insurance: Varies
- Loan origination fee: $15-$30
- Pest inspection: $150
- Property taxes: Varies
- Title insurance: 0.5%-1% of the loan amount
- Title search fee: $300-$500
- Underwriting fee: 0.5%-1% of the loan amount
- Mortgage insurance (FHA Loan): 1.75% of the loan amount
- Discount points (optional): 1% per point
Other Associated Costs
- Courier fees
- Notary fees
- Attorney fees
- Flood insurance (if required)
- Government Fees and Recording
These include transfer taxes and recording fees, which vary by location. You’ll finalize these on closing day by signing key documents, including the loan application, deed, and mortgage promissory note.
Does the Seller Pay Any Closing Costs?
Sellers typically cover real estate commissions (5%-6% of the sale price). You can request seller concessions to cover some closing costs, especially in a buyer’s market or if the property has issues.
Tips to Save on Closing Costs
- Negotiate with the seller
- Shop around for lenders
- Increase your down payment
- Review home-buyer assistance programs
- Consider rolling costs into the loan (with caution)
By understanding closing costs and budgeting effectively, you can avoid surprises and make informed financial decisions during your home-buying journey.