How Much Am I Going To Pay in Closing Costs?
Ask anyone who has bought or sold a home, and you’re sure to hear some horror stories about surprises that have come up during the closing process.
Don’t let closing costs become one of them.
How much are you going to pay in closing costs? That all depends on where you are and the circumstances of the sale.
Closing costs are the fees, taxes, dues and any other items that have to be settled when the title of the property is transferred to the buyer. In plain English, it’s all the stuff left over when the sale is closed. This usually covers some routine items — such as home warranties, recording fees and realtor fees — and they can be negotiated at the time of sale.
Closing cost on a $150,000 home
That means that a $150,000 ranch style home sold for cash in the country will have significantly different closing costs than a $150,000, mortgage-financed condominium sold in an HOA neighborhood in the city.
In either case, Zillow reports that you can expect to pay between 2-5% of the home’s purchase price in closing costs.
That comes out to about $3,000 to $7,500. You’ll know specifically when you apply for your mortgage; your lender is required to give you a good faith estimate of your closing costs. That way you’ll know what you’re getting into.
What are some typical closing costs?
You can usually divvy up your closing costs into a few categories: Mortgage fees, prepaid interest and insurance, third party fees, the escrow account and any negotiated fees. Here’s how they might break down.
- Mortgage fees — Points (a payment made at the time of closing, outlined in the terms of your mortgage, to reduce the interest rate); Taxes and insurance; Mortgage insurance; Lender origination fee.
- Prepaid interest and insurance — You’ll need to pre-pay the interest that will accrue between the closing date and the last day of the month; Pre-paid homeowner’s insurance.
- Third party fees — Realtor fee, Attorney’s fee, Flood check fee, Credit report fee, Closing-escrow fee, Owner’s title insurance, State taxes, Appraisal fee, Recording fee, Tax service fee, Lender’s title insurance, Title endorsement, Homeowner’s association dues.
- Escrow account — Escrow accounts aren’t always necessary, but if you do use one, expect to put money down on homeowner’s insurance and property taxes.
- Negotiated fees —Depending on the situations of the parties represented in the sale, it might make the best sense to negotiate certain items into the closing sale. For instance, if the home inspection uncovered an issue with the house and the seller was not motivated to take care of the problem on his own, the buyer can request the seller cover the repair financially.
As we saw above, the fees included in closing costs can add up, and no matter whether you’re buying or selling, it can take a substantial chunk out of your bottom line. When appropriate, working to negotiate closing costs can maximize the return on your investment.
Another way to avoid closing costs is to get a no-closing cost mortgage, but those can often cost you in the long run.
Want to work out your own closing costs?
Here are some links to closing cost calculators.