Review your closing costs checklist
If you are planning buy your home, it’s important make the numbers before the closing, to be sure how much you’ll pay of closing costs. Feel free to contact us to guide you during this process.
But what are closing costs?
Closing costs are fees associated with your home purchase that are paid at the closing of a real estate transaction. Closing is the point in time when the title of the property is transferred from the seller to the buyer. Closing costs are incurred by either the buyer or seller.
How much are closing costs?
Typically, home buyers will pay between about 2 to 5 percent of the purchase price of their home in closing fees. So, if your home cost $250,000, you might pay between $5,000 and $12,500 in closing costs.
Your lender will give you a Loan Estimate for your loan, which will include what the closing costs on your home will be, within three business days of receiving your completed loan application. But these are just an estimate, and many of the fees listed can change. If they do change, you may receive a revised Loan Estimate so there are no surprises along the way.
Often, many of the fees that make up closing costs are negotiable, and some are completely unnecessary, especially things such as high administrative, mailing or courier costs charged by your lender.
At least three business days before your closing, the lender should give you Closing Disclosure statement, which outlines closing fees.
How can home buyers avoid closing costs?
You can also avoid upfront fees on your loan by getting a no-closing cost mortgage, in which you don’t pay any of the closing costs when you close on the mortgage.
Typically, when a lender offers a deal like this, it does end up costing you in the long run: The lender may charge you a higher interest rate on the loan for not paying closing costs, or the lender may wrap the closing fees into the total mortgage owed, in which case you end up paying interest on the closing costs.
Finally, home buyers can negotiate with the seller over who pays these fees. Sometimes the seller will agree to assume the buyer’s closing fees.
Find below a closing costs checklist:
- Original Fee: payment to lender to evaluate your credit and underwrite and process loan.
- Discount Points: paid to lender at closing to reduce interest rate over life of mortgage.
- PMI or Mortgage Insurance: required if down payment is less than 20%. Protects lender if you default.
- Appraisal Fee: paid to appraiser to confirm home’s fair market value
- Title Search: covers cost to confirm seller owns property, and it is free from liens.
- Title Insurance: protects lender and (optionally) you if title claim surfaces later.
- Termite Inspection Fee: inspection required to certify home is free of termite damage.
- Survey Fee: charge to verify property boundaries.
- Flood Certification Fee: covers cost to determine if home is in federally designated flood zone. If it is, lender will require you to purchase flood insurance. Some lenders also charge a separate flood monitoring fee to check for flood map updates.
- Prepaid Interest: covers mortgage interest due between date of closing and first mortgage payment.
- Prorated Property Tax: covers property taxes from date of closing to end of tax year.
- Homeowners’ Insurance: typically, you’ll pay full first-year cost upfront at closing.
- Homeowners’ Association Transfer Fee: paid on properties governed by associations to transfer ownership documents to you.
- Initial Escrow: lender may require first two months of next year’s homeowners’ insurance, flood insurance and property taxes to build up reserve.
- Closing or Settlement Fee: paid to title company, attorney or escrow company that conducts closing.
- Recording Fee: paid to state to record transfer of property from one owner to another.
- Transfer Tax: paid to state, based on the amount of the mortgage.
Download Closing Costs Checklist here.