Closing costs – the sometimes ominous and often misunderstood price tag associated with buying a home. As a first-time homebuyer or seasoned real estate pro, you probably know that closing costs are a necessary evil. But what exactly are they, and how much should you expect to pay?
In this breakdown, we’ll dive into the world of closing costs and explore what you need to know to make informed decisions about your homebuying journey.
What are Closing Costs?
Closing costs are fees associated with the homebuying process that are typically paid at the closing table. They’re the costs of processing the home purchase, from title searches to financing fees. While closing costs vary depending on the location, type of property, and financing method, they usually range between 2% to 5% of the purchase price.
Who Pays Closing Costs?
In most cases, the buyer is responsible for paying closing costs. However, in some instances, the seller may agree to cover some or all of the costs. It’s essential to negotiate with the seller and review the sales contract to determine who’s responsible for paying what.
Breaking Down Closing Costs
Closing costs can be categorized into two main groups: loan-related costs and title-related costs.
Loan-Related Costs:
- Origination Fee: A lender fee for processing your mortgage application.
- Discount Points: Fees paid to lower your interest rate over the life of the loan.
- Appraisal Fee: A fee for evaluating the property’s value.
- Credit Report Fee: A fee for reviewing your credit history.
- Underwriting Fee: A fee for reviewing and approving your loan application.
Title-Related Costs:
- Title Search Fee: A fee for verifying the property’s ownership.
- Title Insurance: A fee for protecting the lender and buyer from title-related issues.
- Escrow Fee: A fee for handling the transfer of funds and documents.
- Recording Fee: A fee for recording the deed and other documents.
- Survey Fee: A fee for verifying the property boundaries.
Additional Costs
Some closing costs don’t fit into either category, including:
- Flood Determination Fee: A fee for determining whether the property is in a flood zone.
- Mortgage Broker Fee: A fee for using a mortgage broker to find the best loan option.
- Attorney Fee: A fee for hiring an attorney to review and advise on the sales contract.
