Buying a house is expensive, but many of the costs (like the mortgage and mortgage insurance) are paid slowly over a long period of time. However, some costs, like closing costs, must be paid all at once by the buyer. Home buyers who are aware of what closing costs are and who have made arrangements to pay for closing costs when the time comes are better prepared to buy a home.
What Are Closing Costs?
Closing costs are the fees that must be paid when escrow closes and a home is sold. Closing costs can vary from one home sale to the next, depending on a variety of factors including the price of the home and the circumstances of the home sale.
How Much Are Closing Costs?
It's very hard to judge how much closing costs will be at the beginning of the home purchase, since all home sales are different. In general, closing costs can vary between 2 and 5% of the purchase price of the home. Some of the fees associated with the close of escrow can be reduced by shopping around. Other closing costs are unavoidable and cannot be reduced by bargain hunting.
Home buyers who are not able to pay for closing costs can sometimes arrange for home sellers to pay for closing costs for them as part of a home-buying contingency. However, this is a practice that is not often done in a seller's market. Home buyers who would like to arrange for sellers to pay their closing costs must talk to their real estate professional at the beginning of the house hunting process.
What Are the Various Fees That Must Be Paid At Closing?
There are many fees that homeowners must pay in order to purchase a home. Most of the closing costs are associated with the administrative aspects of buying a home. Some of the fees that are paid at closing include:
- Application fee. This fee is paid to the lender for processing the application.
- Appraisal. This fee is paid to the company that performs the appraisal on the home.
- Escrow fee. This is a fee that is paid to the escrow company.
- Credit report. The credit report is pulled to determine the interest rate on the loan.
- Homeowner's insurance. Typically, the first year of homeowner's insurance is paid at closing.
- Title Insurance. This insurance protects the lender if there happens to be a problem with the title.
- Points. The loan discount points are up front payments that lower the monthly payments for the entire life of the loan.
- Origination fee. The origination fee covers the lender's administrative costs.
- Recording fee. This is a fee charged by the local recording office to update the public land records.
- Title search. This fee pays for the title company to research the deed to ensure that no one has a claim to the property.
- Transfer taxes. This tax is paid when the title passes from one owner to another.
- Underwriting fee. The underwriting fee is paid to the lender to cover the cost of researching whether or not to approve the loan.
All of these fees are paid at closing, and often there are other fees to be paid at closing as well. Since every home purchase is different, home buyers must be prepared to pay as much as 5% of the purchase price of their home in Northside at the time of closing.
Contact Your Real Estate Agent and Lender For More Information
For more information about closing costs, home buyers can contact a reputable lender at the start of the home buying process. A knowledgeable lender can answer questions and give home buyers tips for managing closing costs.