Understanding Closing Costs
The entire process of buying or selling a house can be super stressful, but it’s a good idea to know exactly what you’ll need to pay when it comes to closing costs. Especially for new buyers, closing costs can come as a bit of a surprise, but this short guide will break down everything you’ll need to know when you buy or sell your next house.
What Exactly Are Closing Costs?
Closing costs are a little different based on whether you are buying or selling a home, but in both cases, they are basically the fees you pay to third-parties upon closing your deal.
As a buyer, those closing costs go toward the fees associated with owning a home and the fees you owe to your mortgage lender, whoever that may be in your case.
As a seller, the closing costs go toward the fees associated with transferring the title of the house and paying your real estate agent.
How Much Are Closing Costs?
The closing costs of buying/selling a house can differ depending what state you are in and what laws that state has or doesn’t have regarding home and property sales. But in general, when you buy a house, you can expect to pay between 2% and 5% in your closing costs. That can be a large sum of money, which is why it is so important to understand your closing costs!
What Is Included in the Closing Costs for a Buyer?
There are several fees that can be included in the closing costs for buyers. Let’s break down some of the most common ones.
- Application Fee: This fee is from your mortgage lender, and it covers the costs they encountered while processing your loan application.
- Origination Fee: This fee is similar to the application fee, but it covers the costs of processing the paperwork of your new mortgage.
- Prepaid Mortgage Interest: This fee covers the interest gained on your mortgage between the closing day and the day of your first mortgage payment. If you want to lower this payment, try to close on a day toward the end of the month.
- Private Mortgage Insurance: This fee only applies if you pay less than 20% of the home price in your down payment. We recommend you pay at least 20% in order to avoid this extra fee.
- Home Insurance Premium: This fee covers the first year of your home insurance premiums.
- Property Taxes: This fee is pretty self-explanatory, but be sure to read up on the property tax laws within your state to know just how much you can expect to pay.
What Is Included in the Closing Costs for a Seller?
As with buyers, there are several components that make up the closing costs for sellers as well. Let’s take a look at the most common fees.
- Success Fee: This is the commission that I will receive as your real estate agent when I am successful in helping you sell your home.
- Transfer Tax Fee: As I mentioned earlier, the seller is responsible for paying the fee that covers the transfer of the house title.
How Do I Know My Closing Costs?
Luckily, you don’t have to sit down and calculate every single fee associated with closing costs yourself. When you are approved for a loan from your mortgage lender, they will give you a document called a loan estimate, which will contain an estimated version of your closing costs. Later on—at least three business days before your closing date—you will receive a closing disclosure, which will contain the closing costs that you will owe.
Will You Guide Me Through My Closing Costs?
Yes, I will! My goal as your real estate agent is to guide you through the whole process and make sure that your needs are met and your questions are answered as you buy or sell a house. I know the process can be difficult and lengthy, but I will be there each step of the way.