Closing costs are unavoidable when buying a house and include a variety of different services wrapped up in the fees. Though the cost of closing varies based on the sales price, buyers can expect to pay between 2% and 5% of their home’s purchase price.
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What Are Closing Costs?
Homebuyers pay closing costs at the close, or the end, of a real estate sale. But what are closing costs, you ask? These fees cover various service charges to pay everyone involved in getting the house sold. Buyers pay closing costs on top of the price at which they’re buying their house.
Who pays closing costs at closing isn’t always black and white. Sometimes buyers and sellers divide up the cost. Other times, buyers take on the fees in full, or, if home buyers are lucky, sellers will offer to pay the closing fees for them.
It’s important to remember that, by law, closing costs must be discussed with the buyer and seller prior to closing. Both parties have to agree to the costs at hand before both parties can complete the real estate transaction.
What Fees Can You Expect at Closing?
The list of what costs are in closing costs is extremely long, but there are a few that homebuyers can always count on being there. In fact, there’s even a closing fee for closing the sale!
- Attorney Fee
- Closing Fee
- Courier Fee: This can sometimes be an egregious fee, but it covers the cost of moving the documents to finalize the loan as fast as possible
- Credit Report Fee: Credit scores play a large role in determining the interest rate on your mortgage, so this fee pays for how much it costs to check your credit history and score
- Escrow Deposit: When finalizing a real estate sale, buyers put typically down two months’ worth of property tax and/or mortgage insurance payments
- FHA Mortgage Insurance Premium: Also known as an Up-front Mortgage Insurance Premium, abbreviated UPMIP, buyers must pay 1.75% of the base loan if getting a Federal Housing Administration loan
- Flood Determination and Monitoring Fee: This is also known as Life of Loan coverage and is paid to an outside party to see if the home is in a flood zone. If it is, buyers must pay for flood insurance separately from closing costs
- Homeowners’ Association Transfer Fee: The seller pays this fee in order to prove that all payments on the house are current, how much they are, and any other pertinent documentation about the house
- Homeowner’s Insurance: As the name states, this fee covers any damages that could happen to your home. The first year is often paid upfront during the closing meeting
- Lender’s Title Insurance: The fee ensures the lender that you own your house and protects the lender against any issues if the title of the house came into question
- Lead-Based Paint Inspection
- Points: Known as Loan Discount Points, this is prepaid interest on your loan, where one point is one percent of the loan. This lump sum payment essentially lowers your monthly payment for the life of the loan
- Owner’s Title Insurance: This fee tends to be optional and helps in case of anyone questioning whether you own your new home
- Origination Fee: To complete any loan, the lender has to pay administrative fees, so this fee covers those costs
- Pest Inspection
- Prepaid Daily Interest Charges: Lenders will often ask home buyers to pay any interest that accrues between closing and the first mortgage payment in advance
- Private Mortgage Insurance: Also known as PMI, this is required if you’re making a down payment that’s less than 20% of your house’s purchase price
- Property Tax
- Rate Lock Fee: This fee is charged by lenders in order to lock you into a certain interest rate from the time you’re pre-approved to closing
- Real Estate Commissions: Sellers tend to pay this fee, not buyers, and can range from 5 to 6% of the purchase cost of the house without any closing fees factored in
- Recording Fee: This fee is charged by the local record office when they record the land for their public records
- Survey Fee: This fee is not required in all states but pays for a company to verify the property lines on the house’s land
- Tax Monitoring and Tax Status Research Fees: Keeps a record of when your property tax payments may be late
- Title Search Fee
- Transfer Tax
- Underwriting Fees: Covers the cost of when the lender has to research if they should approve you for the loan or not
- VA Funding Fee
How Much Are Closing Costs?
If you’re trying to figure out your own personal closing costs, there are a few different closing cost calculators you can use to calculate an exact amount. However, it’s important to keep in mind that not all closing fees are set in stone—many are negotiable and can be haggled down.
For example, you may ask yourself, “how much are closing costs on a $200,000 house?” to see how the numbers work out. The closing costs for a $200,000 house can range anywhere from $4,000 to $10,000, depending on the interest rate and mortgage payment.
Before settling on your closing costs, your lender must provide you with a Loan Estimate that gives a ballpark estimate of how much your closing fees will be. At least three business days before your closing meeting, your lender must provide you with a Closing Disclosure agreement that outlines every single closing cost line item by line item.
How Can Homebuyers Avoid Closing Costs?
Knowing all the fees involved in closing costs, you’re probably asking yourself, “how can I avoid paying closing costs?” With closing costs, remember that they are negotiable, and you can call attention to any fees you feel are unfair to haggle them down.
In fact, even though it’s the day you’re supposed to close the sale, you can still walk away if the fees are too extreme. Before walking away, though, consider using a real estate lawyer. Skyview Law’s 1% real estate listing fee service can help you navigate closing costs and other aspects of the real estate process.