Closing costs are a collection of fees and payments above the price of the home you're buying. The payments are made to a variety of individuals and organizations who are involved with your transaction.
If you're not familiar with closing costs, don't worry -- you're not alone. Many homebuyers, especially first-time buyers, aren't familiar with the financial side of a typical real estate transaction. (I remember the first time we bought a home, my husband was shocked by the need to put down earnest money in addition to a down payment!)
With that in mind, here's some information to help you understand closing costs and how much you might pay when you close on your next home.
What Are Closing Costs?
Closing costs are the fees and expenses a homebuyer pays to finalize a real estate transaction, separate from the down payment. They can vary by location and situation, but they might include things like
- Government recording costs
- Appraisal fees
- Credit report fees
- Lender origination fees
- Title services
- Tax service fees
- Survey fees
- Underwriting Fees
How Much Will You Need To Budget for Closing Costs?
According to Freddie Mac, the costs to close are typically between 2% and 5% of the total purchase price of your home.
So let's say you find a home you want to purchase for $400,000. Based on the 2-5% Freddie Mac estimate, your closing costs could be between roughly $8,000 and $20,000.
Keep in mind, if you're in the market for a home above or below this price range, your closing costs will be higher or lower.
As the homebuyer, you'll typically pay the majority of closing costs. But, good news -- you may be able to negotiate with the homeowner to get them to pay some of these costs.
What's the Best Way To Make Sure You're Prepared At Closing Time?
Freddie Mac provides great advice for homebuyers, saying:
"As you start your homebuying journey, take the time to get a sense of all costs involved – from your down payment to closing costs."
The best way to understand what you'll need at the closing table is to work with a trusted Realtor®. (Hi, I'm Cari!) I can help connect you with a reliable and trustworthy lender, and together we'll get answers to the questions you might have.
Bottom Line on Closing Costs
In today's real estate market, it's more important than ever to make sure your budget includes any fees and payments due at closing. Let's connect so you have the knowledge you need to be confident going into the homebuying process.
- Cari