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By now you probably know that buying a house isn’t just one big payment, it’s actually lots and lots (and lots and lots and..) of smaller payments.
Many of these smaller payments are due at the end of the home buying process at closing.
Homebuyers and sellers both pay closing costs but buyers always pay more since many of the fees at closing are associated with the mortgage. Typically buyers can expect to pay between 3% to 4% of the home’s price and sellers between 1% to 3%.
Within three business days of receiving your completed loan application lenders will provide you with a Loan Estimate or Good Faith Estimate (GFE). This will help you get an idea of all of the fees associated with your home loan. That being said, a Loan Estimate is just that - an estimate and the fees may change.
Many fees may be negotiable or even unnecessary. For example, appraisals and credit checks have a fixed price, but legal fees, homeowners insurance, and title insurance can vary depending on the lender. This is why it’s good to shop around, you can see if other lenders may be willing to offer you a loan with fewer closing fees.
Then, at least three business days before closing, your lender should give you a Closing Disclosure statement that will outline your closing fees. You can compare this to your Loan Estimate and ask your lender for explanations about each cost and why it’s necessary.
Fees will vary from house to house depending on location, property value, and your financial situation. However, as a homebuyer, these are some common fees you’ll find when it comes to your own closing costs:
- Application fee - covers the cost for the lender to process your application. This fee is often negotiable; some lenders don’t even charge a fee. For those who do, make sure you know what is included, sometimes your appraisal or credit check may be covered.
- Appraisal - paid to the appraisal company for confirming the value of the home, which can help by making sure the value matches the size of the loan you want to get.
- Attorney fee - an attorney is not required to be present for closing in all states, but for those where it is, this fee covers the cost of them reviewing the closing documents for either the buyer or for the lender
- Credit report - covers the cost of a credit report which will detail your credit history and credit score, which play a big role in determining your loan approval, how much to lend you, and the interest rate of your loan.
- Homeowners’ insurance - the first year of homeowners’ insurance, which covers an possible home damage, is paid at closing
- Origination fee - lenders charge an origination fee for processing the paperwork for your loan. This fee is often about 1% of the total loan but it’s possible to find a mortgage with no origination fee.
- Prepaid interest - any interest that will accumulate on your loan between closing the at the start of your first mortgage payment, paid in advance
- Recording fee - a fee charged for the recording of public land records, though either the buyer or seller can pay for this fee, the buyer usually pays fees for the legal recording of the new deed and mortgage
- Survey fee - though not required in all states, when it comes to single-family homes a survey will verify your property lines
- Title search - pays for a thorough search of the public records of the property you’re purchasing, making sure no one else has a claim to the property and there are no other issues that could interfere with your ownership
- Transfer taxes - tax collected when the title passes from seller to buyer
- Underwriting fee - paid to the lender who hires an underwriter to assess your creditworthiness and determine whether or not to approve you for the loan
Now that you have a basic idea of what to expect at closing you can avoid some expensive surprises. You can prepare by saving in advance and doing your research so you have a better idea of what you need to budget for.
But before you can get to closing costs, you have to make an offer. Want to know what that process looks like? Read all about How to Make an Offer on a Home.