When you’re preparing to buy a home, there’s a good chance your main focus is on the down payment. It’s important also to remember that closing costs must be paid as well. While these costs are generally less than your down payment, they can add up to thousands of dollars.
What Are Closing Costs?
Closing costs cover the lender’s origination and processing fees, fund your escrow account, pay the attorney for their work along with the title company and title insurance. The specific amount you pay depends on the purchase price and the type of loan you’re applying for.
How Much Are Closing Costs, Typically?
Closing costs can be anywhere from 3-4% of the total loan amount, which means that a mortgage of $300,000 may come with closing costs that range from $9,000-$12,000.
Who Pays Closing Costs?
It might be possible for you to negotiate some of the closing costs to be paid by the seller, or you may even qualify for closing cost assistance from your lender or a grant; but if neither pan out, then you as the buyer must cover the closing costs, along with your down payment.
Types of Closing Costs
Here are the primary expenses you might expect to pay as the buyer:
• Application fee: Lender charges this fee to process the application.
• Appraisal fee: Paid to the appraiser for evaluating the market value of the property
• Closing fee: Small fee that’s paid to your closing or title company.
• Deposit for escrow: Up to several months of homeowners insurance payments and property taxes
• Homeowners insurance: Provide evidence that you’ve paid your homeowners insurance premium
• Title insurance: Protects buyer and lender if a lien or ownership dispute is eventually discovered after the title search
• Origination fee: Covers all administrative costs for processing your mortgage. You may be able to lower your closing costs by comparing lender fees and grants available before applying.
• Private mortgage insurance: Depends on type of loan and down payment amount.
• Recording fee: County or city charges this fee to record the new deed.
• Title search fee: Costs charged to review previous property ownership records and to ensure a clean title will be passed to the new owner.
