What Are Closing Costs?

Buying your first home can be an exhilarating experience, but it's also one that should be well-planned to avoid unpleasant surprises. It's wise to examine your finances to ensure that you not only have enough funds to make monthly mortgage payments but also cover closing costs. You'll need to pay for most closing costs when you close on the home, although some expenses may have to be covered before this time.

What Specific Fees are Included in Closing Costs?

Closing costs fees include lender fees and third-party fees. Mortgage loan lenders typically charge an origination fee, application fee, underwriting fee, and credit report fee to cover the cost of processing your loan. Furthermore, your lender will require a down payment on the property in accordance with the terms you agreed to when you took out the loan.

Lender Fees

• Loan Origination Fee: Up to 1% of the total loan amount
• Application Fee: Covers processing costs
• Underwriting Fee: Average $500
• Credit Report Fee: To verify your credit history

Insurance and Taxes

There are also insurance premiums. You'll need to pay for at least part of your home insurance policy upfront. You may be required to pay part of the property tax bill upfront as well. If you close on a home before the end of the month, you'll need to pay that month's portion of the mortgage payment.

Professional Services

• Real Estate Agent Commissions: Covered by seller when working with Dr. Jan Duffy
• Appraisal: $500-$1,000 to determine home value
• Title Insurance: Average $500 to protect your ownership
• Survey: At least $400 if property doesn't have a valid survey
• Legal Fees: At least $400 if you hire a real estate lawyer
• HOA Fees: Average $170 per month at Skye Canyon

How Much Can Closing Costs Typically Amount To?

Closing costs vary depending on the lender you work with, your chosen mortgage loan type, the cost of the property, and many other factors. These costs, which do not include the down payment fee, can range between 1% and 5% of the total home purchase price.

Most of the closing costs are paid to your lender. Your escrow deposit, which includes upfront property taxes and mortgage insurance payments for two months, will likely cost thousands of dollars.

Who is Responsible for Paying Closing Costs?

The closing costs listed above are the buyer's responsibility. The seller has other closing costs they have to cover, and these costs are significantly higher than the buyer's closing costs. Sellers must pay about 6% of the total sale price to cover the listing and buyer's agent's commission fees, in addition to other fees and taxes.

However, some sellers may be willing to cover some of the buyer's closing costs as part of the home sale deal. As your buyer's agent, Dr. Jan Duffy can negotiate these terms on your behalf to help reduce your out-of-pocket expenses.

Are There Ways to Reduce or Negotiate Closing Costs?

Yes! Here are several strategies to reduce your closing costs:

How do Closing Costs Differ by Loan Type?

The mortgage loan you take out will determine how much you'll pay in closing costs:

• USDA Loan: No down payment required
• FHA Loan: 3.5% down payment required
• Conventional Loan: 3-5% down payment required
• VA Loan: Veterans can get financial assistance for certain closing costs

What Should Homebuyers Prepare for?

When you evaluate your budget before you buy a home, it's a good idea to estimate that you'll need to pay 2-5% of the home's total price in closing costs. If you're able to get some fees reduced or waived, you'll have extra cash on hand for your move.

You should also expect to pay at least some closing costs before you actually close on the home. Your lender will need a home appraisal in order to process the loan application. If you hire a home inspector to check out the house before you buy it, you'll need to pay their fees before the inspection.