Closing costs are a one time payment that is made on your home on the day the sale closes. However, not all closing costs are created equal. Some are negotiable, while others are set in stone. Here is what you need to know about them.
Overview of Closing Costs
Closing costs, in short, is the money you must pay when you buy a house. These fees for a home can vary depending on the price and type of home you are purchasing. They cover every expense associated with buying a house — from legal fees to property taxes to an inspection.
There are several costs that you should budget for if you’re planning on buying a home.
Common Closing Costs
- Loan Application Fee
- Appraisal Costs
- Attorney Fee
- Closing Fee
- Credit Reporting Fee
- Escrow Funds
- Homeowner’s Insurance
- Loan Origination Fee
- Title Insurance
- Property Taxes
- Transfer Tax
- Underwriting Fee
Depending on how much money you’re putting toward a down payment, the type of mortgage, the type of home, the location of the home and other considerations, you may end up having to other additional fees.
Budgeting for Closing Costs
In general, closing costs are typically between 2% and 5% of the property’s purchase price. For example, if you are purchasing a home for $300,000, your costs could range from $6,000 to $15,000. However, it is important to keep in mind that this is just a rough estimate, and the actual amount you pay could be higher or lower depending on a variety of factors.
To determine how much you will have to pay, you should work closely with your lender and REALTOR®. They can help you understand the various fees associated with purchasing a home and provide you with a detailed list of anticipated costs. You can ask your lender for a loan estimate, which provides a similar breakdown of costs but also includes information about the terms of the mortgage.
Budgeting for closing costs is an important part of the homebuying process. To prepare for these costs, you may want to set aside a specific amount of money in a savings account. You may also be able to negotiate with the seller or lender to reduce the closing costs, although this may not be possible in all cases.
Ensure that you review all costs before signing the final purchase agreement to understand all the fees involved. By being prepared and budgeting for these fees, you can make the homebuying process as smooth and stress-free as possible.