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What are Closing Costs?

Closing costs are comprised of fees and expenses associated with a home purchase that are paid at the closing of the transaction.  The majority of closing costs involved with a home purchase are typically paid by the buyer; however, there are some costs the seller might be responsible for.  According to Zillow, “Home buyers will pay between about 2 to 5 percent of the purchase price of their home in closing fees.  So, if your home cost $150,000, you might pay between $3,000 and $7,500 in closing costs.  On average, buyers pay roughly $3,700 in closing fees, according to a recent survey.”

Closing costs vary and are determined by many factors including, but not limited to:  the type of property you are purchasing, where the property is located and even the type of loan program you choose.  You should have a general idea of what your closing costs will be within three (3) days of applying for a mortgage loan.  Your lender is required, by law, to provide you with a Loan Estimate that will outline the closing costs you should expect to pay on the property you are purchasing within three (3) days of receiving your completed application.

There are a wide variety of fees you may see as part of your closing costs, but not all loans will include all fees.  Some of the fees you might expect to see, are:

    • Application Fee
    • Credit Report
    • Home Inspection
    • Lead-Based Paint Inspection
    • Pest Inspection
    • Appraisal
    • Survey Fee
    • Origination Fee
    • Private Mortgage Insurance (PMI)
    • FHA Up-Front Mortgage Insurance Premium (UPMIP)
    • VA Funding Fee
    • Loan Discount Points
    • Underwriting Fee
    • Homeowners’ Insurance
    • Flood Determination/Flood Insurance
    • Escrow Deposit for Property Taxes & Mortgage Insurance
    • Prepaid Interest
    • Property Tax
    • Transfer Taxes
    • Home Owners Association Transfer Fees
    • Lender’s Policy Title Insurance
    • Owner’s Policy Title Insurance
    • Attorney Fee
    • Title Examination Fee
    • Closing/Escrow Fee
    • Courier Fee
    • Recording Fees

Knowing what to expect is a crucial part of the home buying process.  It is important to talk to your Realtor® and your lender.  Ask them to explain each of your closing costs and why they are necessary.  Keep in mind that closing costs are also negotiable.  Ask your Realtor® about negotiating these costs with the seller when making an offer on a home.  Sellers will sometimes agree to pay certain closing costs on behalf of the buyer.