As you come to the end of your real estate search and factor what your monthly mortgage payment will be, there are some additional costs you will want to be aware of so you aren’t short on finances at the closing table. Closing costs will be the fees you pay at the end of your real estate transaction. Which they may vary based on your location, property type, and lender, it’s helpful to have a basic understanding of what these costs might include so that you can be financially prepared and not be surprised by costs in the end.
What are Closing Costs?
Closing costs are usually paid by the buyer at the closing table to cover various expenses that are related to the purchase. Some fees you will see are:
- Loan Origination Fee: These are fees that your lender will charge to process your loan application.
- Discount Points: If you chose to prepay any interest payments to lower your interest rate, these are paid at closing.
- Appraisal Fee: This fee covers the cost of a professional appraiser to set your property’s value.
- Title Search Fee: A title company will need to search public records to make sure the title to the property is clear.
- Title Insurance: This insurance protects both the lender and you as the buyer if there is a title dispute.
- Attorney Fees: If you are using an attorney, you will pay their fees are a part of your closing costs.
- Property Taxes: You may have prorated property taxes due at closing.
- Homeowners Insurance: You will mostly likely need to provide proof of homeowners insurance before closing.
- Transfer Taxes: Your state or county will levy taxes in order to transfer ownership of the property from the previous owners to you.
How Much Can Closing Costs Be?
On average, closing costs can range between 2% to 5% of your purchase price. Of course, there are several factors that can impact this. Conventional loans typically have lower closing costs than government-backed loans such as FHA or VA loans. You will find that your costs will vary quite a bit from state to state, as well as different lenders charging different fees. You will want to be aware of higher closing costs with new construction as opposed to an existing home, but it’s not uncommon for new construction builders to cover a portion of the costs.
How Can I Estimate My Closing Costs?
There are a couple ways to estimate your closing costs so you can be prepared. Your lender should give you a loan estimate as you proceed into negotiations that will outline the estimated closing costs for your loan. This will give you a good idea of what to expect. There are also online calculators that can give you a general and rough estimate.
Can I Negotiate Closing Costs?
Oftentimes, there are some cases where you can negotiate the closing costs with the seller. You might find that a seller is willing to pay for a portion of the closing costs if you offer a higher purchase price. This is not always possible, and while it’s important to be prepared to pay for the full amount of closing costs, it never hurts to ask. If the market is a buyer’s market, many sellers might entertain negotiations in order to get their home sold faster.
When you are ready to make the next steps towards purchasing a home or have more questions about the homebuying process, reach out to us so that we can walk beside you in this exciting next step.