What are closing costs? How much do they cost?

Whether you are a first-time homebuyer looking to purchase a property or a seasoned homeowner looking to sell one, you should expect to pay closing costs. 

Closing costs will be a percentage of the value a home sells for. While closing costs do affect a home’s affordability, they are important in making sure that the homebuying process goes smoothly for everyone and is handled professionally. 

Ready to begin the home loan process and talk to an expert about what you can expect with your closing costs? Get started on your mortgage application today! 

What are closing costs when buying a house? 

Closing costs refer to all fees associated with finishing a home purchase. These expenses will cover any fees associated with funding and finalizing the homebuying process. Some of your closing costs will go to your mortgage lender, while others will go to a third party. 

Of course, closing costs are not just for the homebuyer. The seller of the home will have their own closing costs as well. 

How much are closing costs on a home purchase? 

Closing costs when purchasing a home are made up of many fees and expenses, and they amount to anywhere from 2% to 6% of a home’s purchase price. 

So they aren’t surprised when the time comes, many potential homebuyers try to figure out how much their closing costs could be before making an offer on a home. 

Closing costs for buyers vs. sellers 

A seller will have a different set of closing costs associated with selling and transferring a property to a new owner. Their closing costs can be anywhere from 6% to 10% of the sale price of their home. 

How location affects closing costs 

Depending on where you are looking to buy a home, you might notice your closing costs are a little different from elsewhere. 

The price of local transfer taxes and recording fees can vary from area to area. Some states require attorneys during the closing process to review all documents, which will add to your closing costs.   

Since closing costs are also based on a percentage of the value of the home, purchases in locations where home values are lower will have lower closing costs. 

Common mortgage closing costs explained 

These are a few common mortgage closing costs you will see. 

Loan origination fees 

Loan origination fees are among the biggest items you will have to cover in your closing costs. These fees are a one-time payment that covers the costs of your lender beginning, underwriting, processing and funding your loan.  

Appraisal and inspection fees 

When looking at a home to purchase with a loan, lenders will require a professional appraisal and/or inspection. They do this to ensure that the home you are looking to buy is worth the value they will loan and that everything is in working and safe condition. 

Title search and title insurance 

A title search is the cost of examining the home’s ownership history to learn if there are any liens or claims on the property. Title insurance protects the lender’s interest in the property in case any problems arise with the home’s title. 

Underwriting and processing fees 

Underwriting fees cover the expenses of your lender researching a property to see if they should approve the loan. To cover the cost of your loan being handled and processed by a lender, you will be charged a processing fee. 

Sometimes these costs will be rolled into your origination fees. To avoid surprises, make sure you talk with your lender to see if these costs will be separate. 

Prepaid taxes and homeowner’s insurance 

To help protect a lender’s investment in your house, a homeowner’s insurance will be required for the first year of your loan and added to your closing costs. Any property taxes, prorated for when you purchased the home, will be included as well. Property taxes could also be included in your escrow costs. 

Recording and government fees 

Another part of your closing costs will be when your lender files any documentation of the transaction and record of title transfer according to local rules and governance. These will show up in your closing costs as recording and government fees. 

If you have any questions about closing costs, what you could expect to pay or how to prepare for them, get connected with a professional Loan Officer when you begin your home loan application. 

Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply.  

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