You are likely wondering what your closing costs will be when you buy a home. These can equal almost as much as your down payment depending on how your loan is structured! Talking to your loan officer (LO) early in the process can help you plan how much you can put down, and how much you need to reserve to cover your closing costs.
What Are Closing Costs?
Closing costs include fixed costs related to buying a home, like nonrefundable home inspection and appraisal fees, and negotiable costs, like lender fees and costs you may be able to get the seller to pick up. Closing costs are generally due at closing, the day you finalize your home purchase and deal with things like property taxes, title transfer, and insurance on your new home.
What are the average closing costs?
Average closing costs can sum up to anywhere from 2% to 4% of your purchase price. If your loan is for $200,000, your closing costs could be anywhere from $4,000-$8,000.
What do closing costs include?
Closing costs can include any or all of the following:
Loan related fees:
- Loan Application Fee – these are actually referred to across the industry as “junk fees’, and you should try to get them waived.
- Loan Origination Fees – This 1% fee is another negotiable cost that should be contested for mainstream loans like conventional, FHA or VA loans.
- Underwriting, Processing or Admin Fees – These “lender fees” can vary greatly from lender to lender, and cover the cost of underwriting. If underwriting is done “in-house” the costs are usually lower.
- Credit Report Fees – Your lender will ask for a credit card and charge this fee directly to pull your report when you apply for a loan.
- Discount Points – Depending on the mortgage backed securities market, you can get as much as a quarter point knocked off your interest rate for every 1% of your purchase price you pay at closing above your regular closing costs. This can save you tens of thousands of dollars over the life of your loan even if you only buy a few points.
Property related fees
- Home Inspection Fees – A home inspection is always advised, and you’ll be responsible for paying for both a standard inspection and any special inspections you may want (like looking for termite damage or mold.)
- Property Appraisal Fees – Your lender will require an appraisal to help determine loan to value (LTV) ratio, which can affect the down payment and interest rate for your loan.
- Property Taxes – Usually a buyer has to pay the prorated taxes for the billing period during which they purchased the home, but this can vary by state.
- Recording Fees – You’ll have to pay to have the transfer of property recorded by the city or county.
- Survey Fees – Verifying property boundaries is most commonly required on construction loans, although it is worthwhile to find out if there have ever been any disputes with neighboring properties and clear that up before you buy.
Legal related fees
- Attorney Fees – Many states require an attorney for loan closing. If you are allowed to simply use an escrow company, you might still want an attorney to review your purchase and construct, especially if you are buying a bank-owned home, a home with structural damage, or a home from an estate.
- Title Search Fees – In most states the buyer pays the lender’s title policy, and the seller pays the owner’s title policy, which covers the cost of searching and insuring deed records to identify disputes or liens. This fee must be disclosed on the Loan Estimate.
- Title Transfer Taxes – In some states this cost of transferring the title is paid by the seller and in others it is paid by the buyer.
Additional fees
- Escrow Deposit – Two months of property tax and mortgage insurance payments may need to be put into escrow immediately, and you may need to add any months needed to catch up to allow for a full payment the next time the premium is due.
- Escrow Fees – You’ll have to pay the escrow company a fee for handling holding and disbursement of funds.
- Courier Fees – These only apply to physical documents and are becoming rarer with digital signings.
Your closing costs may be covered all or in part by your earnest money, which is credited back to you at closing less any legal disbursements. You may be able to negotiate with your lender, the home seller, or even your buyers agent to cover some or all of your closing costs.
What will my closing costs be?
Three days from the date you originally apply for a loan, you’ll get a Loan Estimate. This standardized form is mandated for use by all lenders, to make it easier for you to compare loans and costs.
Three days before signing your final loan documents you’ll get a final Closing Disclosure. This will list the final costs you are paying and how much you’ll owe at closing.
There are government set tolerance dolomites that apply to how much difference there can be between your Loan Estimate and your Closing Disclosure. Any major discrepancies must be satisfactorily explained by a valid Change of Circumstance in your loan structure. If you are confused by your two documents, ask your Loan Officer for help understanding the forms.
Remember, don’t wait for your Closing Disclosure to start negotiating your closing costs. You may be able to get the lender to waive or pay some costs, the seller to kick in and defray your discount points, or even your agent to reimburse you after closing from their commission.
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