Now that youโve decided to buy a home and are ready to make it happen, itโs a good idea to plan ahead for the costs that are a typical part of the homebuying process. And while your down payment is probably the number one expense on your mind, don’t forget about closing costs. Hereโs what you need to know.
What Are Closing Costs?
Simply put, your closing costs are the additional fees and payments you have to make at closing. And while theyโll vary based on the price of the home and how itโs being financed, every buyer has these, so they shouldnโt be a surprise. Itโs just that some people forget to budget for them. According to Freddie Mac, this part of the homebuying process typically includes:
- Application fees
- Credit report fees
- Loan origination fees
- Appraisal fees
- Home inspection fees
- Title insurance
- Homeowners insurance
- Survey fees
- Attorney fees
Some of these are one-time expenses that are baked into your closing costs. Others, like homeownersโ insurance, are initial installment payments for ongoing responsibilities youโll have once you take possession of the home.
How Much Are Closing Costs?
The same Freddie Mac article goes on to say:
โClosing costs vary greatly depending on your location and the price of your home. Typically, you should be prepared to pay between 2% and 5% of the home purchase price in closing fees.โ
With that in mind, hereโs how you can get an idea of what youโll need to budget. Letโs say you find a home you want to purchase at todayโs median price of $422,600. Based on the 2-5% Freddie Mac estimate, your closing fees could be between roughly $8,452 and $21,130.
But keep in mind, if youโre in the market for a home above or below this price range, your numbers will be higher or lower.
Tips To Reduce Your Closing Costs
If youโre wondering if thereโs any way to inch that down a little bit, NerdWallet lists a few things that could help:
- Negotiate with the Seller: Some sellers are willing to cover part or all of these expenses โ especially since homes are staying on the market a bit longer now. Sellers may be more motivated to compromise, and youโll find you have a bit more negotiation power. So donโt hesitate to ask them for concessions like paying for the home inspection or giving you a credit toward closing costs.
- Shop Around for Home Insurance: Since rising home insurance is a challenge in many areas of the country right now, take the time to get a clear picture of all your options. Each insurance company offers their own policies and coverage, so get multiple quotes and see how they compare. Choosing a policy that provides reliable coverage at a competitive rate can make a difference.
- Look into Closing Cost Assistance: Just like there are programs out there to help with your down payment, options exist to get support with closing costs too. While theyโll vary by area, there are programs for various income levels, certain professions, and specific towns or neighborhoods too. If you want to learn more, Experian says:
โYour real estate professional should be able to steer you toward applicable programs, and the U.S. Department of Housing and Urban Development (HUD) maintains a helpful resource for finding homebuying assistance programs in every state.โ
Bottom Line
Planning for the fees and payments you’ll need to cover when you’re closing on your home is important โ and it doesnโt have to be a big surprise. For more tips and expert advice, partner with a team of trusted real estate professionals, including a trusted agent and lender.
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