Buying a home is an exciting milestone, but it comes with various expenses beyond the purchase price. One of the most significant out of pocket costs other than your down payment is closing costs. In this blog, we’ll break down what closing costs are, what’s included, how much you can expect to pay, and tips for managing these expenses.
What Are Closing Costs?
Closing costs are fees associated with finalizing a real estate transaction. These costs cover various services required to process and close your mortgage. They typically range from 2% to 5% of the home’s purchase price and are paid at the closing of the transaction when the title of the property is transferred from the seller to the buyer.
What’s Included in Closing Costs?
Closing costs can vary depending on the lender, the location of the property, and the specifics of the loan. Here are some common fees you might encounter:
- Loan Origination Fees: This fee is charged by the lender for processing the loan application and creating the loan. It typically ranges from 0.5% to 1% of the loan amount.
- Appraisal Fee: An appraisal is necessary to determine the market value of the home. This fee usually costs between $300 and $500.
- Home Inspection Fee: A home inspection ensures the property is in good condition. This fee typically ranges from $300 to $500.
- Title Search and Title Insurance: A title search ensures there are no legal claims or liens against the property. Title insurance protects against future claims. These fees can range from $500 to $1,000.
- Survey Fee: In some cases, a property survey is required to determine the exact boundaries. This fee typically costs around $400 to $700.
- Attorney Fees: In some states, an attorney must oversee the closing process. Attorney fees can vary widely but generally range from $500 to $1,500.
- Recording Fees: These fees are paid to the local government to record the property sale and transfer of ownership. They usually range from $100 to $250.
- Underwriting Fees: These fees cover the cost of the lender’s underwriting process, which assesses the risk of lending you money. They typically range from $400 to $900.
- Prepaid Costs: These include prepaid interest, property taxes, and homeowner’s insurance that must be paid in advance at closing. The amount varies based on the loan terms and the time of year.
- Private Mortgage Insurance (PMI): If your down payment is less than 20%, you may need to pay PMI. The cost varies but is usually between 0.3% and 1.5% of the original loan amount annually.
How Much Are Closing Costs?
Closing costs typically range from 2% to 5% of the home’s purchase price. For example, if you’re buying a $300,000 home, you can expect to pay between $6,000 and $15,000 in closing costs. The exact amount depends on various factors, including the loan type, the lender, and the location of the property.
How to Manage and Reduce Closing Costs
- Shop Around for Lenders: Different lenders have different fee structures. At Ross Mortgage Company we believe in transparency on all aspects of the mortgage process.
- Ask the Seller to Contribute: In some cases, sellers are willing to cover part of the closing costs to expedite the sale. This is often referred to as seller concessions.
- Use Lender Credits: Some lenders offer credits toward closing costs in exchange for a higher interest rate on the loan. This can reduce your upfront expenses but increase your monthly payments. To learn more about the lender credits available from Ross Mortgage Company talk to a loan officer today!
- Close at the End of the Month: Closing at the end of the month can reduce the amount of prepaid interest you’ll need to pay, as you’ll owe interest for fewer days.
- Review the Loan Estimate: The Loan Estimate form provided by your lender outlines the estimated closing costs. Review it carefully and ask questions about any fees you don’t understand or that seem higher than expected.
- Utilize Closing Cost Assistance Programs: Some local and state programs offer assistance with closing costs for first-time homebuyers or low-income buyers. Research available programs in your area to see if you qualify.
Conclusion
Closing costs are an essential part of the home-buying process, and understanding them can help you prepare financially. By knowing what’s included, how much to expect, and ways to manage these costs, you can navigate the closing process with confidence. Whether you’re a first-time homebuyer or a seasoned homeowner, being informed about closing costs will help you make better financial decisions and achieve a smoother home-buying experience.
