Closing on a house is a big step in anyone’s life. It’s an exciting time but can also be daunting, especially if you’re new to the process. So, what does it cost to close on a house? Here’s what you need to know about closing costs for buyers.
What are Closing Costs When Buying?
When buying a house, the term “closing costs” refers to all the fees and expenses associated with the property purchase. Closing costs include title insurance, loan origination fees, appraisal fees, and more.
How Much are Closing Costs?
Can You Finance Closing Costs?
Financing your closing costs can be an excellent way to keep your upfront expenses low. In most cases, closing costs are an out-of-pocket expense paid at closing time. However, some lenders may be willing to finance your closing costs as part of your overall loan. It’s important to note that this will add considerable interest charges to your overall loan amount.
Can You Negotiate Closing Cost with the Lender?
Can You Negotiate Closing Costs with the Seller?
In some cases, you may be able to negotiate with the seller to have them cover some or all of your closing costs. Convincing the seller to pay your closing costs is typically only possible if the seller is motivated to sell quickly, so it’s not always an option.
What's Included in Closing Costs?
While closing costs can vary depending on the transaction, some standard fees are typically included. These can include:
Application fee: A fee the lender charges to cover the cost of processing your loan application.
Credit check: A fee charged by the lender to cover the cost of running a credit check. Your credit score should be no less than 620.
Attorney fees: It’s not always required, but you may need to hire a real estate attorney in some states.
Underwriting: A fee charged by the lender to cover the cost of underwriting your loan. Underwriting is the process of assessing your financial risk and determining whether or not you’re eligible for a loan.
Origination fee: A fee charged by the lender to cover the cost of originating your loan. To originate your loan means to create and fund it.
Title check: A fee charged by the lender to cover the cost of checking the property’s title to ensure there are no liens or other claims against it.
Title insurance: A fee charged for insuring the property’s title. Title insurance protects you if there are any claims against the property.
Escrow: A fee charged by the escrow company to set up and manage your escrow account. An escrow account is used to hold funds during the home-buying process.
Appraisal fee: A fee charged by the appraiser to assess the value of the property you’re buying. The appraisal is used to determine whether or not the property is worth the price you’re paying.
Inspection fee: A fee charged by the inspector to assess the condition of the property you’re buying. The inspection is used to identify any potential problems with the property that you should be aware of before making your purchase.
Homeowner’s insurance: A fee charged by the insurer to cover the cost of insuring your home. Homeowner’s insurance protects you in the event that your home is damaged or destroyed.
Flood or fire insurance: A fee charged by the insurer to cover the cost of insuring your home against flood or fire damage if the house you’re buying is in a high-risk area.
Private mortgage insurance: A fee charged by the lender to cover the cost of insuring your loan. Private mortgage insurance is required if you’re putting less than 20% down on your home.
Property taxes: A fee charged by the government to cover the cost of property taxes.
Transfer tax: A fee the government charges to cover the cost of transferring the property’s title to you.
Recording fee: A fee charged by the government to cover the cost of recording the property’s deed.
HOA fees: If the property you’re buying is in a community with an HOA, you’ll pay those fees as part of your closing costs.
Points: You may opt to pay points to get a lower interest rate on your loan. Points are a fee you pay upfront, and each point equals 1% of your loan amount.
Closing costs can vary depending on the transaction, but some common fees are typically included. You may be able to negotiate with the seller to have them cover some or all of your closing costs. It’s also vital to shop around and compare rates among different lenders to get the best deal.
You can also avoid paying closing costs by taking out a no-closing cost loan. With a no-closing cost loan, the lender pays the closing costs on your behalf in exchange for a higher interest rate. No-closing cost loans are typically available from mortgage brokers, but not all lenders offer them.
If you’re unsure about what fees you’ll be responsible for, ask your lender for a good faith estimate. This document will itemize your transaction’s estimated costs and help you plan how much money you’ll need to bring to closing.
For more information about closing costs for buyers, talk with your real estate agent today.