Everything You Need to Know About Closing Costs

There’s a lot that goes into buying a home. Perhaps the most important step of that process is the actual transaction where the home transfers from one person to the other – also called the closing.

When you come to the table, there are a few closing costs that need to be paid for everything to go through. Here’s everything you need to know about closing costs.

How Much Are Home Closing Costs?

First, let’s talk about how much you can expect to pay in closing costs. Typically you can expect them to be between 3% – 6% of the home’s purchase price. So a $300,000 home would usually have closing costs between $9,000 and $18,000. Why the variance? It all depends on your state, which mortgage lender you’re going with, what type of mortgage you get, and more. Business Insider posted an article a while back with the average closing costs in each state, in case that helps give you an idea as well. Ordinarily, you should not be caught off guard by closing costs. It is common practice for lenders to update you upfront and give you an idea of what to expect. They will give you preliminary estimates, along with a closing disclosure form three days before closing.

What is Included in Closing Costs?

These costs are essentially when a lot of the parties that are involved in the closing process get paid. Here are a few of the fees to expect.

Attorney fee – the home purchase contracts and agreements don’t appear out of thin air. A real estate attorney has to prepare them and this usually carries a fee.

Application fee – your lender may charge you this just to process your mortgage application. This is something you’d want to know about upfront as you begin working with a lender.

Closing fee – sometimes called an escrow fee, this is compensating the party who is handling the closing. It could be an attorney, an escrow company, or a title company. It depends on your state.

Credit Report fee – This is usually pretty small, but your lender had to pay the credit bureaus to pull your credit report. You may have to pay them back.

Escrow – this one depends on your lender. They may want you to put some of your property tax and private mortgage insurance payments into an escrow account to get the ball rolling and make sure you have some available when the time comes to pay your taxes.

Homeowners insurance – your lender may want you to pay for a full year of homeowners insurance before you close. They want to make sure the home is protected from loss in case there’s an incident.

Lender title insurance – your lender had to work with a title company to make sure there were no liens or ownership disputes with the property. This compensates them for that work.

Points to lower interest – sometimes called discount points, this is an upfront payment (that’s completely optional) to the lender. It’s designed to lower your interest rate.

These are the common closing costs incurred in a sale. However, this list is in no way conclusive, and there may be more costs depending on your state and the lender involved,

Who Pays Closing Costs?

In most cases, neither party is responsible for paying 100% of the closing costs. Unless there was some kind of agreement in the contract, it tends to be split between the buyer and the seller. The seller typically pays a big chunk of the fees, such as the real estate commissions. Meanwhile, a buyer will tend to pay most of the other fees. This isn’t set in stone, however, as one party can offer to pay more of the closing costs if they really want to close the deal.

Conclusion

Do you have any other questions about closing costs? Send us an email or call at (775) 688-9100. We love helping clients through every step of the process, so we’re more than happy to answer any questions you have. We’ll talk to you soon!