Closing costs are the fees and expenses associated with the purchase or sale of a home. These costs can add up quickly, so it’s important to understand what they are and how much you can expect to pay. In this article, we’ll provide a detailed list of closing costs, explain which costs can be negotiated, and discuss how much you can expect to pay for closing costs. We’ll also go over who pays for the various costs and provide some examples and statistics to help you better understand the process.
List of Closing Costs:
Loan Origination Fees: These are fees charged by the lender for processing the loan application and making a loan decision.
Appraisal Fees: An appraisal is an estimate of the value of the property. The appraisal fee covers the cost of the appraisal.
Credit Report Fees: The lender will run a credit report to determine your creditworthiness. The credit report fee covers the cost of the report.
Title Search Fees: A title search is a review of the property’s title records to make sure that the title is clear and there are no liens or other claims against the property. The title search fee covers the cost of the search.
Title Insurance Fees: Title insurance protects the owner from any title defects that may arise in the future. The title insurance fee covers the cost of the insurance policy.
Recording Fees: These fees cover the cost of recording the transfer of ownership with the local government.
Survey Fees: A survey is a map of the property that shows the boundaries, location of structures, and other important information. The survey fee covers the cost of the survey.
Attorney Fees: An attorney can assist with the legal aspects of the transaction and review the contract and closing documents. The attorney fee covers the cost of their services.
Pre-paid Interest: This is the interest that will accrue on the mortgage loan between the closing date and the first mortgage payment.
Property Taxes: Property taxes are based on the value of the property and are paid by the homeowner.
Homeowner’s Insurance: Homeowner’s insurance protects the homeowner from damage to the property and liability for accidents that occur on the property.
Escrow Deposits: Escrow deposits are required by some lenders to pay for items such as property taxes and homeowner’s insurance.
PMI (Private Mortgage Insurance): PMI is required by some lenders for borrowers who make a down payment of less than 20%. PMI protects the lender in case the borrower defaults on the loan.
Which Costs Can Be Negotiated? Some of the closing costs can be negotiated, including loan origination fees, appraisal fees, title search fees, and attorney fees. It’s important to note that not all lenders allow for negotiation, so be sure to ask your lender if negotiation is possible.
How Much Should You Expect to Pay for Closing Costs? The amount you’ll pay for closing costs can vary widely depending on the lender, the type of loan, the location of the property, and other factors. On average, closing costs can range from 2-5% of the loan amount. For example, if you’re taking out a $200,000 mortgage loan, you can expect to pay between $4,000 and $10,000 in closing costs.
Who Pays for Closing Costs? The buyer and seller typically split the closing costs, with the buyer paying for some costs and the seller paying for others. For example, the buyer typically pays for loan origination fees, appraisal fees, credit report fees, and title insurance. The seller typically pays for
recording fees, title search fees, and attorney fees. However, the specifics of who pays for what can vary based on the terms of the sale and the local real estate practices. In some cases, the seller may agree to pay a portion of the buyer’s closing costs as part of the sale negotiation.
It’s important to review the closing costs with your lender or real estate agent and understand what costs you will be responsible for. They can also help you understand which costs can be negotiated and which are non-negotiable.
The Consumer Financial Protection Bureau has a calculator for the closing cost at Consumer Financial Protection Bureau (CFPB). (2021). Closing costs. Retrieved from https://www.consumerfinance.gov/owning-a-home/
Another study by the Consumer Financial Protection Bureau (CFPB) found that closing costs on average can vary from 2-5% of the loan amount, with some borrowers paying as much as 10% of the loan amount in closing costs. The CFPB also found that the total amount of closing costs can vary widely depending on the lender, the type of loan, and the location of the property.
Conclusion: Closing costs can add up quickly, so it’s important to understand what they are and how much you can expect to pay. By knowing what costs are involved and which ones can be negotiated, you can better prepare for the closing process and avoid any surprises. If you have any questions or concerns about closing costs, be sure to reach out to your lender or real estate agent for guidance. Additionally, resources such as the FTC website and the Consumer Financial Protection Bureau can provide valuable information on closing costs and the home buying process.