What To Know About Closing Costs

by Bill Watson

Buying a home is an exciting milestone, but it also comes with various expenses beyond the down payment. One of the key costs you’ll need to plan for is your closing costs. These additional fees are a standard part of the homebuying process, so it’s important to understand them before finalizing your purchase. Here’s a breakdown of what you need to know.

What Are Closing Costs?

Closing costs are the various fees and expenses you’ll need to pay when finalizing the purchase of your home. While these costs can vary depending on factors like the price of the home and the loan type, they are a necessary part of every home transaction. Some common closing costs include:

Application fees
Credit report fees
Loan origination fees
Appraisal fees
Home inspection fees
Title insurance
Homeowners insurance
Survey fees
Attorney fees

Some of these fees, such as homeowners’ insurance, represent ongoing responsibilities, while others are one-time expenses paid at closing.

How Much Are Closing Costs?

The amount you’ll need to cover in closing costs depends on the location of your home and the home’s purchase price. According to Freddie Mac, closing costs typically range from 2% to 5% of the purchase price.

For example, if you’re purchasing a home at the current median price of $422,600, you can expect closing costs to fall between $8,452 and $21,130. Keep in mind that if you’re purchasing a home priced higher or lower than this, your closing costs will vary accordingly.

Tips To Reduce Your Closing Costs

Wondering if there are ways to save on closing costs? Here are a few strategies that may help reduce the burden:

Negotiate with the Seller: In some cases, sellers may be willing to cover part or all of the closing costs. This is particularly true in a slower market where homes are staying on the market longer. Don’t hesitate to ask the seller to pay for expenses like the home inspection or offer a credit toward your closing costs.
Shop Around for Home Insurance: Home insurance rates can vary significantly, so it’s a good idea to get multiple quotes and compare coverage. By selecting a policy that balances comprehensive protection with a competitive rate, you may be able to reduce one aspect of your closing costs.
Look into Closing Cost Assistance Programs: Many local, state, and federal programs offer assistance with closing costs, particularly for first-time homebuyers or individuals in specific professions. Your real estate agent can help direct you to available resources, and HUD maintains a guide to homebuying assistance programs in each state.

Bottom Line

Closing costs are an essential part of buying a home, but with some careful planning, they don’t have to be a surprise. By understanding the costs involved and exploring options to reduce them, you can better prepare yourself financially for homeownership. Let's connect so I can guide you through the homebuying process and help you navigate your closing costs with confidence.