Closing costs are various fees and charges incurred by a buyer and seller during the finalization of a real estate transaction. Typically, these costs range from 2% to 5% of the property's purchase price and can include numerous individual expenses. Here’s what you can generally expect:
Common Closing Costs
Loan Origination Fee: This fee is charged by lenders for processing the loan application, usually about 0.5% to 1% of the loan amount.
Title Insurance and Search Fees: Protects against losses due to title defects. The cost varies based on state regulations and the property's value but is usually a one-time fee.
Appraisal Fees: Paid to a professional appraiser to verify the property's market value. Typically costs between $300 and $500.
Credit Report Fees: Charged for pulling your credit report, usually around $30.
Attorney Fees: If applicable, these cover services performed by a real estate attorney or settlement agent. Costs can vary widely depending on location and the complexity of the transaction.
Recording Fees: Imposed by local government entities for recording the sale with the county registrar. Varies by location.
Homeowners Insurance: Often required upfront and should cover the first year. The cost varies depending on the insurer and coverage amount.
Property Taxes: Buyers may need to pay prorated property taxes from the day of closing through the end of the tax year.
Mortgage Insurance Fees: If your down payment is less than 20%, you might need to pay for private mortgage insurance (PMI). Initial payments are included in the closing costs.
Negotiation and Discounts
- Seller Concessions: Sometimes, sellers agree to pay part or all of the closing costs depending on negotiation outcomes and market conditions.
- No-Closing-Cost Lenders: Some lenders offer loans that bundle closing costs into the mortgage amount, avoiding upfront fees.
Preparing for Closing
- Obtain a Loan Estimate from your lender within three business days of applying for a mortgage. This document provides an estimate of your closing costs.
- Receive a Closing Disclosure at least three business days before closing, detailing the final terms and costs of your mortgage.
Having a precise understanding of the components of closing costs helps in budgeting properly and negotiating effectively, ensuring a smoother transaction. Review all charges and consult with your real estate agent or lawyer if anything is unclear or seems out of line with standard practices.