Purchasing a new home is exciting, but it’s also an involved process that can take plenty of time, paperwork and money. Even as you’re wrapping up the transactions during the closing stage, there are associated costs. Here’s a look into what closing costs are and how much you might pay.
What Is Closing, Exactly?
“Closing” is a term that describes the last step in purchasing a home; think of it as closing the deal. It’s the point in the buying process when a property has sold and ownership is transferring from the seller to the buyer. On the day that a property closes, both the seller and buyer sign paperwork that finalizes the transaction, and the buyer typically gets keys to the new home. Aside from signing documents for the mortgage lender, title company and other entities, paying certain fees is also part of the closing process. These are the closing costs. Once these funds are distributed and paperwork is finalized, the buyer can take ownership of the home.
What Are Closing Costs?
Closing costs are an array of fees that cover the costs different entities charge to prepare and process all the paperwork that’s necessary during the home-buying process. They also include some of the money you put down for purchasing the home. The fees you pay will be somewhat unique to your situation, but some of the common costs include:
- Application fee for your mortgage lender to process loan papers
- Escrow payments to cover the first few months of property taxes or mortgage insurance
- Underwriting fees that cover the time the mortgage company spent researching your creditworthiness
- Courier fees to cover the physical transfer and delivery of any paperwork between offices
- Appraisal fees for verifying the fair market value of the home
As part of closing costs, a buyer might also prepay the first year of homeowners insurance.
How Much Are Closing Costs?
Closing costs usually come to between two and five percent of the purchase price of the property, and on average, homebuyers typically pay around $3,700 to cover closing, notes Zillow. However, adding in various fees can elevate the closing cost significantly. When you get a mortgage, your lender may give you an estimate that helps you better anticipate closing costs. The actual amount you end up paying may be closer to between five and 10 percent more than this figure, states Home Buying Institute.
Who Pays Closing Costs?
The buyer almost always pays closing costs associated with getting a mortgage, according to Home Buying Institute. In certain markets, however, a buyer may be able to negotiate with the seller to cover those closing costs. If an area’s real estate market has more homes for sale and fewer buyers, a seller may be eager to make concessions to sell his or her home and offer to pay some or all of the closing costs.
Do Sellers Pay Any Other Closing Costs?
Most closing costs are associated with various fees the buyer must pay for processing. However, the seller also typically covers a different set of costs that may include the real estate agent’s commission and some fees charged for transferring the title of the home. These need to be paid regardless of whether the seller decides to cover some of the buyer’s costs during negotiations.