What Are Closing Costs?
Closing costs are a vital part of the home buying process and include all the expenses to complete the acquisition of a property. Of course, these costs will vary depending on your location as well as your own unique situation. In general, closing costs can go from 3 – 6% of the overall price of the home or property. For example, if you are considering a home of $400,000 then budgetary closing costs can range from approximately $12,000 to $24,000.
Quite broadly, closing costs are those fees associated at the completion of your real estate transaction. This is the point in time that titles are transferred from the seller to the buyer. Closing costs can be incurred by both the seller and the buyer.
What Can You Expect?
Keep in mind closing costs cover a very broad group of fees. For example, it can be from things such as your home appraisal and title deeds and other searches, legal fees to title insurance. Here we will list a few broad categories to be mindful of as you prepare for your closing cost.
Closing Costs Include But Are Not Limited To:
- Application Fee – Cost to process your application by the lender. This may include credit checks, and credit score research and appraisal.
- Appraisal Fee – The market value of your property must be determined. This is also classified as the fair market value.
- The Attorney’s Fee – The transaction between buyer and lender is a legal process. Any documents signed between the lender and the buyer should have an attorney’s review.
- Escrow Fee – As the property is transitioning from one party to the other there is the independent party whether governmental or private that oversees the closing transaction.
- Courier Fee – This is the cost of transport of any documents involved in the transfer.
- Your Credit Report – This is used to determine your rate of interest on your mortgage and loan. There is also a likely cost involved here as your credit history and score is requested.
Other costs which may also be included in the closing costs, or viewed separately depending on your agreement, are:
- Deposit for Property Taxes & Mortgage Insurance
- Up Front Mortgage Insurance Premium
- Flood Determination
- Life of Loan Coverage
- Home-Owners Insurance
- Lender’s Policy Title Insurance
- Owner’s Policy Title Insurance
- Private Mortgage Insurance
- Home-Owner Transfer Fees
- Home Inspection
- Pest Inspection Fee
- Property Tax
- Recording Fees
- Survey Fee
- Underwriting Fee
- Transfer Taxes
Closing Costs – How Much?
It is imperative to at least work with a budgetary plan to prepare for your closing costs. As mentioned, closing costs typically range from 3 – 6% of the overall price of the home or property. For example, if you are considering a mortgage of $200,000 then budgetary closing costs can go from approximately $6,000 to $12,000.
Do note, that generally, the closing cost is outside of your down payment total.
Can Some Of These Costs Be Avoided?
Whenever you are considering starting your mortgage or loan journey, be sure to ask as many questions as you can about the closing costs. It is also quite important that you shop around for the best available terms that can meet your specific needs. Further to this maybe look to also negotiate some costs such as mailing or courier and similar admin fees.
There are also options to have the lender foot the majority of your closing cost, but this is based on your negotiation process, and it may even be beneficial to include a financial advisor to help manage these costs. Do note that if the lender foots this bill it may still be integrated into the overall loan as well, or in the rate of interest.
Remember one size does not fit all in these types of cases. You do have a unique proposition with your closing cost, and the lending institution so do your research to minimize costs.