Home buying… it can be fun, it can be stressful and it can be overwhelming! There are so many steps and processes and costs involved in the process, and as a Realtor it is my job to have answers to all of my client’s questions and concerns. While I always get asked about negotiations, inspections and more, one of the main questions I receive from my buyers is…
“What will my closing costs look like…?”
Honestly, it’s important to have a nice breakdown to show where all of your money is going and possible costs that seem hidden to the first time home buyer. This is likely BIGGEST purchase a person will make during their life, so people need to know what it’s going to cost and where their money is going. It can get complicated on whether the buyer or seller is paying for certain portions of closing costs, but that’s where your handy-dandy Realtor swoops in to guide you in the negotiating process!
So first of all… what are closing costs? Closing costs are fees associated with the purchase of your property/home that are paid at the closing of your real estate transaction. A closing is when the title of the property purchased is transferred from the seller to the buyer. Closing costs are incurred by either the seller or the buyer, these CAN be negotiated.
Now that we understand the high level description of closings costs, let’s break it down. While there is a rather large list of items that can go into closings costs, what I’m going to do is break down the biggest costs first and dwindle it down to other associated costs.
Title Company Fees (Cost Ranges Follow the Descriptions)
- Appraisal: Paid to appraisal company to ensure fair market value of purchased home. Cost: Ranges are ~$500.
- Flood Certification: Pulled by third-party, determines if property is located in a flood zone. Cost: Ranges close to $10-$15.
- Postage or Courier Fees: Cost for transfer of documents. Cost: Ranges close to $40.
- Recording Fee: Recording of public land records. Cost: Typically around $130-$150.
- Settlement Fees: The title company is paid for handling the closing. Cost: Ranges from $200-$300.
- Survey: Goes to a survey company to verify property lines. This is not always necessary as some sellers already have a survey on file. Cost: Ranges around $650 for a normal lot.
- Tax Services: This includes transfer taxes, property taxes that will either be prorated or handled at the closing table. Cost: Ranges close to $100.
- Title Search: The title company is paid for their search of the property’s records. They check on the deed of the home and ensure there are no liens, etc.
Lender Fees (These fees vary, so depend on lender for guidance with your situation)
- Credit Report: Pulled by lender, grabs credit history for loan approval.
- Homeowner’s Insurance: You’re typically paying your first year of insurance at closing. Simple as it sounds, it’s insurance and covers any potential damages to the home.
- Origination Fee: Covers lender’s research and administrative costs. Typically 1 percent of loan.
- Owner’s Title Insurance Fees: Can be optional, but protects you in the event that there are challenges to the ownership of your home.
- Underwriting and Processing Fee: Goes to lender and pulls history/researches buyer for loan approval.
A great estimate that I like to give my buyers on their potential closing costs would be to vary it from 2 to 4 percent of the overall purchase price of the property. So if you’re purchase a $200,000 home, you can think ~$8,000 on the very high end and ~$4,000 on the low end. I find it better to give my clients an estimate that near a number than nothing at all. It gives my buyers and sellers a little piece of mind.