Are you interested in purchasing a home but confused by closing costs? Keep on reading to learn all about them!

First and foremost: Closing costs are fees that are paid at the time your transaction finishes. These can can add up, and if you're not expecting them, these fees can be quite an unpleasant surprise during the home buying process.

How much are closing costs anyway? To lessen the surprise and make sure that you know the details, by law you are required to receive a document, called the Closing Disclosure, at least three days before closing. It itemizes the actual costs that you need to pay to complete the transaction.

Although how much are closing costs depends on the price of the home and other services that you received when buying your home, a run-down of some of the common closing items and their approximate costs are described below:

  • Loan origination fee: This is an expense you pay at the beginning of the transaction to your lender for creating your new loan.
  • Underwriting fee: This fee is for reviewing your application and indicating whether you are approved, denied, or your application is incomplete.
  • Mortgage points fee: This is a fee that you can choose to pay in exchange for a lower interest rate.
  • Appraisal fee: This is a fee to determine that value of the home. The appraisal helps your lender know if the home is worth the amount that you need to borrow.
  • Credit report: Before agreeing to a mortgage, your lender needs to know that you are a good credit risk. This fee is to get access to your report credit to review your financial history.
  • Flood monitoring fee: Certain areas of the United States are classified as flood zones. Every so often, these areas are re-mapped. Lenders charge this fee to monitor which properties are affected.
  • Title search: This fee is paid to research that the house that you intend to buy is actually owned by the seller.
  • Title insurance: This policy that protects you against any issues or challenges relating to the ownership or title of your home.
  • Home inspection: Both you and your lender need to know that the home you want to buy is in good structural condition, and that is determined through a home inspection. The cost depends on the inspector and the size of the home.
  • Transfer tax: This fee, usually paid by the seller, indicates that you have a registered interest in the property.
  • Pre-paid interest: Mortgage loans are typically due on the first day of every month. But because mortgages can close on any day of the month, you need to pay a certain amount of interest at closing to pay up to the first of the month. This amount depends on the price you are paying for your home.
  • Homeowner’s insurance: Every home owner needs home owner’s insurance. You generally pay your first year’s insurance at closing. You can shop around to find the best rates on this expense.
  • Prorations: You will also be responsible for paying for your share of certain costs, such as property taxes and utility bills. This amount depends on usage.

If you have been wondering how much closing costs are, just remember that the fees mentioned above are only estimations about how much you may need to pay. 

But to prepare yourself, make sure you have saved up approximately 2% of your intended purchase price for closing fees. Note that depending on the number of services you purchase, your fees can be 5%. Having additional cash on hand will put you in the best position possible when thinking about how much closing costs are.

If you are interested in buying a home, learning more about closing costs, or the home buying process, please reach out! We are happy to help and make the process as smooth as possible. Call Kim today - 508.808.1149