Closing Costs: The Ultimate Guide

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When you are buying a house, there are a lot of costs to consider. Besides the down payment, you will also need to budget for closing costs. Closing costs are the fees and expenses that come with finalizing your purchase. They can add up to several thousand dollars, so it’s important to plan ahead.

In this FastExpert guide, we’re going to examine the best ways to budget for closing costs, how to negotiate with sellers, and how to get help with closing costs if you need it.

What Are Closing Costs?

Closing costs are the fees associated with buying a house. They can include everything from lender fees to title insurance and property taxes. The average closing costs in the US are about 3-6% of the purchase price of the home.

For example, if you’re buying a $200,000 house, your closing costs could range from $6,000 to $12,000. This is a significant amount of money, so it’s important to factor it into your budget when you’re planning to buy a home.

When you’re budgeting for closing costs, it’s also important to keep in mind that they are usually paid at closing. This means that you will need to have the money available when you sign the final paperwork and complete the purchase.

Types of Closing Costs

Appraisal Fee

The next thing to consider is the appraisal fee. This is the fee charged by the appraiser for evaluating the property you’re buying. The cost of an appraisal can vary depending on the type of property and its location. However, it typically ranges from $300 to $600.

Assumption Fee

An assumption fee is a fee charged to transfer the mortgage to a new borrower. This fee is typically only required if you’re assuming someone else’s mortgage. The cost of this fee can vary, but it is typically around $500.

Attorney Fees

If you’re using an attorney to help with your purchase, you will need to factor in their fees as well. Attorney fees can vary depending on the type of work they are doing for you. For example, if you’re using an attorney to review your purchase contract, their fees will be lower than if they are attending the closing with you. You can expect to pay anywhere from $500 to $1,500 for attorney fees.

Cancellation Fee

If you cancel your loan after the rate lock period, you may be charged a cancellation fee. This fee can vary, but it is typically around 1% of the loan amount.

Courier Fee

A courier fee is a small fee charged by the title company to deliver the closing documents to you. This fee is typically around $25.

Credit Report Fee

If you’re getting a mortgage, the lender will order a credit report as part of their approval process. The cost of the credit report is typically around $30.

Escrow Deposit

An escrow deposit is a deposit of money that is held by the title company or attorney. This deposit is used to pay for things like property taxes and insurance. The amount of the escrow deposit will depend on the purchase price of the home and the lender’s requirements.

Escrow or Closing Fee

The escrow or closing fee is a fee charged by the title company or attorney for their services. This fee covers the cost of things like preparing the closing documents and conducting the closing itself. The escrow or closing fee typically ranges from $200 to $500.

FHA Mortgage Insurance Premium

If you’re getting an FHA loan, you will be required to pay a mortgage insurance premium. This premium is a percentage of the loan amount and is paid at closing. The premium can range from 0.5% to 1% of the loan amount, depending on the type of loan and other factors.

Flood Determination and Monitoring Fee

If the property you’re buying is in a flood zone, you may be required to pay a flood determination and monitoring fee. This fee is typically around $15.

Home Inspection Fees

This is the fee charged by the inspector for evaluating the condition of the property. The cost of a home inspection can also vary depending on the type of property and its location. However, it typically ranges from $200 to $400.

It is important to note that a home inspection report may not cover all of the areas required by the lender and you may need to get separate pest and lead-paint inspections at additional costs.

Homeowners Association Transfer Fee

If the property you’re buying is in a community with a homeowners association, you may be required to pay a transfer fee. This fee is used to cover the cost of transferring the ownership of the property to you. The amount of the fee can vary, but it is typically around $100.

Homeowner’s Insurance

Homeowner’s insurance is required by most lenders and must be paid at closing. The cost of homeowners insurance will depend on the value of your home and the coverage you choose.

Lender’s Title Insurance

A lender’s title insurance policy protects the lender against any claims that may arise from problems with the title to the property. The cost of this insurance is typically around $100.

Origination Fees

Origination fees are charged by your lender for processing your loan. They can range from 0.5% to 1% of the loan amount, and they are typically paid at closing.

For example, if you’re taking out a $200,000 loan, your origination fee could be anywhere from $1,000 to $2,000.

Owner’s Title Insurance

The owner’s title insurance protects you against any claims that may arise from problems with the title to the property. The cost of this insurance is typically around $100.

Points

Points are a type of fee that you may be required to pay when you get a mortgage. They are a percentage of the loan amount and are paid at closing. One point is equal to 1% of the loan amount.

For example, if you’re taking out a $200,000 loan, one point would be $2,000.

Prepaid Daily Interest Charges

Prepaid daily interest charges are the interest charges that accrue from the day of closing until the first day of the following month. The amount of these charges will depend on the loan amount, interest rate, and the number of days between closing and the first day of the month.

To reduce this fee, try to schedule the closing date as close to the last day of the month as possible. That way, there will be fewer days between closing and the first day of the month, and you’ll pay less in interest charges.

Private Mortgage Insurance (PMI)

If you’re putting less than 20% down on a home, you will likely be required to pay private mortgage insurance (PMI). This is an insurance policy that protects the lender against loss if you default on the loan.

The cost of PMI will depend on the size of your down payment and the terms of your loan. It can range from 0.3% to 1.5% of the loan amount and is typically paid at closing.

Property Tax Escrow

If your property taxes are not paid in full at closing, you will likely be required to escrow for them. This means that the lender will hold onto a portion of your monthly mortgage payment to cover the cost of the taxes when they come due.

The amount of money that is escrowed will depend on the tax rate for the property and the amount of the loan.

Rate Lock Fee

If you’re taking out a variable-rate mortgage, you may be charged a rate lock fee. This fee gives you the option to lock in the interest rate for a certain period of time, typically 60 days. The cost of a rate lock fee can vary, but it is typically around $100.

Realtor Commissions

If you’re working with a realtor, they will typically charge a commission of 5% to 6% of the purchase price of the home. This commission is paid at closing.

Recording Fee

The recording fee is a fee charged by the county to record the deed to the property. The cost of this fee can vary, but it is typically around $100.

Survey Fee

A survey fee is a fee charged to have the property surveyed. This is typically only required if the property has never been surveyed before. The cost of this fee can vary, but it is typically around $100.

Tax Monitoring and Status Research Fees

Tax monitoring and status research fees are charged by the lender to keep track of the property taxes for the home. These fees are typically around $50.

Title Search Fee

The title search fee is a fee charged to search the public records for any liens or claims against the property. The cost of this fee can vary, but it is typically around $100.

Transfer Tax

A transfer tax is a tax charged by the state or local government to transfer the ownership of a property. The cost of this tax can vary, but it is typically around $100.

Underwriting Fee

The underwriting fee is a fee charged by the lender to cover the cost of processing the loan. This fee can vary, but it is typically around $100.

VA Funding Fee

If you’re a veteran taking out a VA loan, you will likely be charged a VA funding fee. This fee helps to cover the cost of the VA loan program. The amount of the fee can vary, but it is typically around 2% of the loan amount.

Vector Control Fee

A vector control fee is a fee charged to help control the spread of pests and diseases. This fee is typically only required in certain areas. The cost of this fee can vary, but it is typically around $50.

Wraparound Mortgage Fee

A wraparound mortgage fee is a fee charged to create a new mortgage that includes the balance of an existing mortgage. This fee is typically only required if you’re refinancing your home. The cost of this fee can vary, but it is typically around $100.

Zoning Certificate Fee

A zoning certificate fee is a fee charged to pull the zoning information for the property. This fee is typically only required if the property is zoned for commercial use. The cost of this fee can vary, but it is typically around $50.

Ways to Pay Closing Costs

There are a few different ways that you can pay for closing costs.

Out-of-Pocket

The most common way to pay for closing costs is to pay them out-of-pocket. This means that you will need to have the money available at closing.

If you don’t have enough money to cover the costs, you may be able to get a loan from a family member or friend. You can also see if the seller is willing to pay some of the costs.

Roll Them Into the Loan

Another option is to roll the closing costs into the loan. This means that you will finance the costs and pay them off over time. This can be a good option if you don’t have enough money to cover the costs upfront, but it will increase the amount of interest that you pay over time.

Ask Seller to Pay Them

In some cases, the seller may be willing to pay the closing costs. This is typically only an option if you’re buying a new home from a builder. If you’re buying a resale property, the seller is usually not willing to pay the closing costs.

Wraparound Mortgage

A wraparound mortgage is another option for paying for closing costs. This is when you take out a new mortgage that includes the balance of your existing mortgage. The downside of this is that it will likely increase the interest rate on your loan.

How to Avoid Closing Costs

There are a few ways that you can avoid paying closing costs.

Get a No-Closing Cost Loan

Some lenders offer loans with no closing costs. This means that you won’t have to pay any fees at closing. The downside of these loans is that they usually have a higher interest rate. This means that you will end up paying more money over the life of the loan.

Ask for a Lender Credit

In some cases, you may be able to get the lender to give you a credit at closing. This means that they will pay some or all of the closing costs. The downside of this is that it will likely result in a higher interest rate on your loan.

Get a Government Loan

If you’re eligible for a government-backed loan, such as a VA loan, you may be able to avoid paying closing costs. With a VA loan, for example, the seller can pay up to 4% of the loan amount in closing costs. The downside of this is that it will likely result in a higher purchase price.

Shop Around for Lenders

Another way to avoid paying closing costs is to shop around for lenders. Some lenders will offer loans with no closing costs. Others will offer lender credits. You’ll need to compare the offers to see which one is the best deal for you.

Negotiate Fees that are Loan-Specific

In some cases, you may be able to negotiate the fees that are specific to the loan. This includes things like the appraisal fee and the credit report fee. You’ll need to ask the lender if they are willing to negotiate these fees. Some fees that are loan-specific are:

  • Application Fee
  • Broker Rebate
  • Loan Processing Fee
  • Rate Lock Fee
  • Underwriting Fee

How to Budget for Closing Costs

Now that you know what closing costs are and how to pay them, let’s take a look at some tips for budgeting for them.

1. Get an Estimate Early

The first step is to get an estimate of your closing costs as early as possible. This way, you can factor them into your budget and make sure you have the money available when you need it. Your lender should be able to give you an estimate of your closing costs when you apply for a loan.

2. Compare Loan Estimates

Once you have an estimate of your closing costs, compare it to the estimates from other lenders. This way, you can be sure you’re getting the best deal on your loan.

3. Shop Around for Closing Costs

The last tip is to shop around for closing costs. There are a lot of different fees that make up closing costs, and some of them are negotiable. That means you may be able to get a better deal by shopping around.

For example, you may be able to negotiate a lower origination fee with your lender. Or, you could ask the seller to pay a higher percentage of the closing costs.

The bottom line is that it’s important to be aware of closing costs when you’re buying a house. By getting an estimate early and shopping around, you can make sure you’re prepared to pay them.

How to Negotiate With Sellers

If you’re asking the seller to pay for part of your closing costs, it’s important to negotiate in a way that’s fair to both parties. The best way to do this is to first find out what the seller’s bottom line is. Then, make an offer that’s close to that number.

For example, if the seller’s bottom line is $200,000 and you’re willing to pay $210,000, you could offer to pay $205,000 with the sellers paying $5,000 of your closing costs. This is a fair offer that’s likely to be accepted.

If the seller refuses to negotiate on price, you can still ask them to pay some of your closing costs. This is often more negotiable than price, so it’s worth asking even if the seller isn’t open to negotiation on price.

Can a Seller Refuse to Pay Closing Costs?

Yes, a seller can refuse to pay closing costs. There are many reasons why a seller might choose to do this, but the most common reason is that they are unable to come up with the money out of pocket. However, in some cases, it may work to the advantage of both parties in other ways to have the buyer pay for closing costs.

How to Get Help With Closing Costs

If you’re having trouble saving up for closing costs or negotiating with sellers, there are government programs that can help. The US Department of Housing and Urban Development (HUD) offers a program called the Good Neighbor Next Door program. This program provides down payment assistance and closing cost assistance to teachers, police officers, firefighters, and other professionals who work in low-income areas.

There are also state and local programs that offer assistance. You can search for these programs on the HUD website or on your state or local government’s website.

Conclusion

Closing costs can add up to several thousand dollars, so it’s important to budget for them in advance. The best way to do this is to save up as you’re planning to buy a house. You can also negotiate with sellers to ask them to pay part of your closing costs. If you’re having trouble saving up or negotiating, there are government programs that can help with down payment assistance and closing cost assistance.

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