Throughout the process of buying a home, you will encounter the term “closing costs.” This term can seem somewhat abstract and intimidating, especially since nobody wants to be taken off guard with unforeseen and hefty additional costs to seal the deal! To help clear up any confusion and elusiveness, I want to cover today what closing costs are, who normally pays for them, and how to estimate how much your specific closing costs may be.
What are closing costs? The definition of closing costs is: “fees due at the closing of a real estate transaction in addition to the property’s purchase price.” These closing costs are a combination of fees, taxes, and insurance that are disclosed to both the buyer and seller before any signatures are penned. Property taxes, title transfer taxes, appraisal fees, credit report fees, attorney fees, and homeowners insurance are among the most common non-negotiable closing costs.
Who will cover closing costs? The buyer typically will cover the majority of the closing costs, although the seller sometimes covers a portion of them as well. This is something that can be included in negotiations regarding the purchase of the home. It is not uncommon for the seller to cover real estate commissions, transfer taxes, and title preparation fees, although this is not a given. This is an area where it is crucial to be open and transparent in communication between the buyer and the seller, making sure that there is clear understanding of how these costs will be split.
How much are closing costs? The simplest way to get a ballpark estimate of how much you will be spending on closing costs is to assume that your closing costs will come out to 3%-6% of your loan amount. This means that, for example, on a $200,000 mortgage, closing costs will likely fall from anywhere between $6,000 to $12,000.
You may be asking at this point if there is any way to lower closing costs (which is an excellent question to ask)! Who doesn’t love to save a little extra cash where we can?! The two best ways to do this are to carefully select your lender, and to negotiate well with the seller. Not all lenders are created equally, and you can inquire about the fees they charge in initial conversations before committing to anything. Don’t be afraid to take your time and compare and contrast their rates! And when it comes to negotiating with a seller, this can actually be a win-win situation. You can potentially come out of the deal with lower closing costs, and the seller can enjoy a quicker and smoother home sale (especially in a buyer’s market)!
As always, it is the pleasure of my team and I to “unlock new doors” with you, and to walk alongside you throughout the entire process! If you have any questions regarding closing costs and your specific situation, please don’t hesitate to reach out!
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