Buyer Closing Costs

Surprising as it may be, your down payment isn’t the only expense when it comes to closing on a property. Another component is the various charges grouped as “closing costs.” How much will they cost? And why are they necessary? In this article we share you information about buyer closing costs as we understand that managing your home purchase finances carefully is crucial, particularly for those sticking to a tight budget.

Understanding House Closing Costs

The closing costs encompass all fees related to purchasing a home, extending beyond the property’s purchase price. These costs generally follow a standard pattern. But the specific amount you pay can vary depending on negotiations with the seller. These expenses might include title insurance, loan origination fees, appraisal fees, title searches, surveys, taxes, deed recording fees, and credit report charges.

Another key point, sellers may be willing to cover closing costs. However, buyers should anticipate paying the entirety of buyer closing costs without relying on seller generosity.

Finally, lenders are obligated by law to furnish buyers with a closing disclosure three business days prior to the scheduled closing or settlement date.

How much is the closing costs for buyers?

Closing costs differ based on factors like lender requirements, government mandates, and specific situations. Closing costs usually range from 3% to 6% of the loan amount. The amount you pay depends on your location, chosen lender, and loan type. You can check this online closing costs calculator.

What’s included in the closings costs:

  • Application Fee. Certain lenders impose an application fee for processing your loan request.
  • Attorney Fees. In some states, you must involve an attorney when closing a housing loan. Attorney fees include the costs of managing the closing process and preparing paperwork for the title transfer.
  • Closing Fee. The closing fee is directed towards the escrow company or attorney overseeing your closing meeting.
  • Courier Fee. Covering the cost of transporting paper documents.
  • Credit Reporting Fee. A fee for obtaining credit reports from the three main credit bureaus.
  • Escrow Funds. Some lenders might mandate placing a deposit equal to two months’ worth of property tax and mortgage insurance payments into an escrow account.
  • Flood Determination and Monitoring Fee. This closing cost is applicable only when purchasing a house in a flood zone.
  • Homeowners Association Transfer Fee. Typically, the seller covers this cost, but in competitive markets, you might need to pay. The fee amount depends on your HOA’s policies, and if there’s no HOA, you won’t incur this fee.
  • Homeowners Insurance
  • Lender’s Title Insurance. Lender’s title insurance safeguards the lender in case of a title claim leading to the loss of your home.
  • Title Insurance. Optional, but provides broad coverage. This safeguards the lender and buyer in case of ownership disputes or liens that were not discovered in the title search.
  • Pest Inspection. In certain states or when using a VA loan, a pest inspection may be mandatory before closing.
  • Prepaid Daily Interest Charges. Your lender may request upfront payment for the interest that accumulates on your loan from the closing date to the first mortgage payment date.
  • Private Mortgage Insurance (PMI). One month of Private Mortgage Insurance (PMI) may be required at the closing If the down payment is below 20%.
  • Property Tax. The amount depends on your location and home value.
  • Property Appraisal Fee.
  • Survey Fee
  • Title Search Fee
  • Transfer Tax
  • Underwriting Fee

Who informs you about the amount of your closing costs?

Your lender must provide you with an estimate of your closing costs. Eventually, you’ll receive a more accurate figure in your loan closing disclosure at least three days before the scheduled closing. This will detail the expected amount to bring.

Can I negotiate closing costs?

Certain closing costs are open to negotiation. If a buyer believes a lender is including unnecessary fees, they have the option to request a reduction or seek clarification.

Ways to cut down on closing costs

Buyers should be cautious about high processing and documentation fees and might have the opportunity to decrease closing costs by:

  • Comparing Options: Compare fees from different lenders. Buyers have the flexibility to choose their title company, pest inspector, or home insurer, not necessarily relying on the lender’s recommendations.
  • Origination Fee: Many lenders are willing to negotiate on this fee.
  • Title Insurance: In some states, you may have the option to forgo it.
  • Closing Attorney: Inquire with different attorneys about their fees.
  • Collaborate with the seller: Buyers might negotiate with sellers to reduce the purchase price or contribute towards closing costs.

Is it possible to receive help with closing costs?

Yes. There are numerous states that offer financing programs to assist first-time buyers in covering both down payment and closing costs. A recommended starting point is your state’s down payment assistance program, housing finance authority, or a similar resource.

Typically, these programs aim to assist buyers who, despite having the necessary monthly income to cover mortgage payments, may lack sufficient upfront funds for homeownership.

Closing costs include a range of fees payable during the closing or settlement of a real estate transaction. Buyers bear the majority of these costs, covering expenses like mortgage origination and underwriting, taxes, insurance, and record filing. The law requires disclosing closing costs to both buyers and sellers, and both parties must reach an agreement before finalizing a real estate contract.