The total cost can come as a shock to many homebuyers who are only looking at coming up with the amount of their down payment. In this article, learn exactly how much you can expect to pay in closing costs so that buying the home of your dreams can become a reality.
How Much Can You Expect To Pay for Closing Costs?
Closing costs to buy a home typically run from about 2% to 6% of the purchase price, with an average of around 3%. The total will primarily depend on the points and origination fees a lender charges to make the loan. For example, total closing costs to purchase a $300,000 home could range from approximately $6,000 (2%) to $18,000 (6%)—or even more, depending on the situation. The funds typically can’t be borrowed because that would raise the buyer’s loan ratios to a point where they may no longer qualify. You should receive a closing disclosure document that outlines all of the costs you can expect to pay at closing. You’ll see your loan terms, loan costs, and more in this document. It’s important to review it and ask questions in advance of your closing date so you can come prepared with any money needed to pay the costs. You should also ask how the costs should be paid (check, wire transfer, etc.) so you can make any accommodations with your bank in advance.
One-Time Closing Costs for Buyers
Many closing costs are non-recurring in that they must be paid just once. Buyer’s closing costs that are one-time charges may include:
Title policies Appraisal Escrow payments Tax service fees Notary fees Wire fees Courier and delivery fees Attorney fees Endorsements Recording fees State, county, or city transfer taxes Home protection plans Natural hazard disclosures Home inspections Lender fees paid along with the loan on the loan estimate
Other Closing Costs To Know
There are buyer’s closing costs that you’ll pay, again and again, either monthly or yearly, as time goes on, much like a typical insurance premium. These are often fees collected in advance of closing for prepaid premiums and establishing impound/escrow accounts. They include:
Fire insurance premium Flood insurance (if required in your area) Property taxes Mutual or private mortgage insurance premiums Prepaid interest
The time of the year when you close will dictate how many pro-rata months of premiums the lender will collect to hold against future payments of taxes and insurance.
How To Save on Closing Costs
Every home sale is unique, and depending on your situation, you may be able to find ways to trim some of the closing costs. Each party, contractor, inspector, or agent you work with along the way may be considered a resource for information about how to save money on any given step in the larger process. Still, you might also consider some of these common solutions.
What About ‘Free’ Closing Costs?
First-time homebuyers can sometimes catch a break and have their closing costs paid for by a government agency. However, there are many eligibility requirements a buyer will have to meet, including household income limits. Check your county or state down payment assistance programs to see if you qualify for this type of assistance. Not all state housing finance agencies (HFAs) provide down payments to buy a home, but some do. Others often lend closing costs on favorable terms that won’t affect loan ratios. Programs that provide for buyer’s closing cost assistance often record an instrument in the public records to provide security for the loan. But this loan typically carries zero interest and has no set due date. It must be paid off at the time of sale if the homebuyer later sells the property or upon a refinancing, whichever occurs first.
Seller Credits
A seller credit sometimes referred to as a “seller concession,” is effectively money contributed to the buyer from the seller to cover some closing costs. Seller credits are not paid to buyers directly. Instead, the amount is rolled into the sale price of the home, lowering the cost of the overall loan. Always check with your lender before negotiating an offer that involves a seller’s credit. In some cases, the lender might not allow it. Some common scenarios include:
The lender might limit your credit to 3% of the purchase price if you’re financing 100% of the purchase price.Depending on your FICO score and the amount of your down payment, the lender might allow a seller to credit you as much as 6% of the purchase price.
Further, TRID—the TILA RESPA Integrated Disclosure rule that governs mortgage disclosure statements—might not allow any last-minute changes to your closing statement in the final days before closing. These credits will be notated on your closing statement.
When More Costs Might Be Better
Lenders will often permit you to pay “points,” sometimes called “discount points,” at closing. These fees are paid in exchange for receiving a lower interest rate over the life of the loan, which could potentially save you money in the long run. One point usually runs around 1% of the amount you’re borrowing. However, paying them will drive up your closing costs.
