Are you looking to buy a house? Well, there’s more to it than just saving up for a down payment. You’ll also need to budget for closing costs—those extra fees linked to your mortgage. It can be confusing, but we’re here to explain everything you need to know before you finalize your loan.
**What Are Closing Costs?**
Closing costs are the fees you’ll pay to your lender, real estate agent, and any other third parties involved when you buy a house. These can include property expenses, mortgage application fees, and other paperwork-related charges. Typically, as a homebuyer, you’ll handle most of these costs, while the seller usually covers real estate agent commissions and transfer fees.
**How Much Are Closing Costs?**
Generally, closing costs range from 3% to 6% of your loan amount. For example, if your mortgage is $200,000, expect to pay between $6,000 and $12,000. Before you wrap up your loan, you’ll get a Closing Disclosure detailing these costs. Make sure to compare it to the Loan Estimate you received when you first applied.
**What Do Closing Costs Cover?**
Closing costs can be a mix of one-time charges and the first payments of ongoing costs. They vary depending on where you’re buying, the size of the home, and its price. Here’s what you might encounter:
**Application Fee**
Some lenders might ask for an application fee when you submit your loan application. Though not all lenders charge this, it’s typically nonrefundable.
**Credit Report Fees**
These cover the cost of pulling your credit report, which lenders use to decide if they should approve your loan and what interest rate to offer.
**Loan Origination Fee**
This fee pays for processing your loan and is usually 0.5% to 1% of the total loan amount, which could be several thousand dollars.
**Government Recording Costs**
These fees are for registering your property and mortgage documents with state and local government agencies, which can vary based on where you live.
**Appraisal Fees**
An appraiser charges this fee to determine the home’s value. The amount can change depending on the size and value of the house.
**Home Inspection Fee**
This covers the cost of having a professional inspect the home’s condition. While not required, it’s smart to get one to spot any potential issues before buying.
**Title Insurance**
This ensures there are no issues with the property’s title, such as unpaid debts or other claims.
**Survey Fees**
A surveyor will assess your property’s boundaries, which is especially useful if you plan to build or make changes later.
**Attorney Fees**
In some states, an attorney must oversee the closing process. Both the buyer and seller usually share this cost.
**Homeowners Insurance**
Most lenders need you to prepay the first year of your homeowner’s insurance before the closing day.
**Initial Escrow Payments**
These are the upfront deposits into your escrow account for future property taxes and homeowners insurance.
**Final Say**
Your closing costs will vary based on your loan type, home value, and state laws. The seller might also cover some costs, depending on the agreement. To potentially lower these costs, try negotiating with your lender or asking the seller to pitch in. You could also consider a no-closing-cost loan as an alternative.