The 411 on Closing Costs for Home Buyers

You’ve found your perfect home, come up with your down payment, and locked in a mortgage rate. Think you’re done paying fees for your new home? Not quite. While you probably want to close up your wallet for good at this point, there are a number of closing costs for home buyers that you’ll need to consider. Below, we’ll break down what sorts of costs you’ll have to factor in before you finally get your keys.

What are closing costs?

Closing costs are the fees you pay in order to secure your home purchase. You’ll pay them at the closing of your real estate transaction—the time when the title is transferred over to your name.

Who pays for closing costs?

Both the home buyer and the seller incur closing costs. In a particularly strong buyers’ market, you may be able to negotiate and have the seller cover all or a portion of your closing costs. Most of the time, however, you’ll need to cover the closing costs for home buyers yourself.

Typical closing costs

Closing costs for home buyers include a range of possible fees, though you likely will not be responsible for all of them. On or before your closing date, you will be provided with a closing disclosure statement that outlines the closing fees and who will be responsible for paying what. Here are some of the fees that might be included on your end.

Mortgage-related closing costs

As the buyer, it’s very likely that you will be responsible for paying your own mortgage fees. These may include:

Application fee: The cost for your lender to process your application. This generally includes things like running your credit score and the cost of obtaining your home appraisal.

Credit report: Even if your lender does not charge an application fee you may still need to pay for your credit report. This report is used to inform the lender on your credit score and history, which in turn helps dictate the interest rate you get on your loan.

Discount points: Your loan office may allow you to lower the interest rate on your mortgage by paying for discount points at closing. Each point costs 1 percent of the loan amount and will generally lower your mortgage rate by 0.25 percent.

Mortgage broker fee: If you used a mortgage broker to help you find a loan, he or she will be paid out of your closing costs. The fee is typically 1 percent to 2 percent of your loan amount.

Mortgage insurance: Depending on the terms of your loan, you may need to pay for private mortgage insurance (PMI). Rates vary, though in general, the less you put down for the house or the lower your credit score, the higher your PMI cost will be. Mortgage insurance is typically paid with a one-time at-closing fee plus an annual premium broken down month to month.

Pre-paid interest: Your lender may have you prepay the interest that will accrue for your loan in the time between your closing date and the date of your first mortgage payment.

Underwriting fee: A fee to your lender for researching your loan eligibility.

Depending on the additional services utilized and the negotiations between buyer and seller, there may be additional closing costs for home buyers that should be considered.

Title-related fees

Closing fee / escrow fee: A title company or escrow company will oversee your closing as an independent party and will receive a fee at closing.

Title insurance (to protect you): A fee paid to protect against financial loss stemming from a past defect in the title (for example: if upon title research it comes out that an individual other than the seller owns the property).

Title insurance (to protect your lender): Protects your lender from financial loss related to a title defect.

Title search fee: The fee you pay a title company to conduct research on your new home that verifies no one else has claim to the property and that the deed has been transferred from seller to buyer.

Transfer tax: The tax paid upon transferring the title from the seller to the buyer.

Other fees

Attorney fee: If you hired a real estate attorney to look over your contract, you will pay him or her out of your closing costs.

Courier fee: The fee to cover the cost of transporting documents.

Flood determination fee: You will need to pay this fee if you hired a third party company to establish whether the property is in a flood zone. (If it is, you’ll need to buy flood insurance too.)

Home inspection fee: The cost of the home inspection that takes place prior to the final contract.

Lead-based pain inspection fee: The fee paid for having a third party assess the property’s lead-based paint risk.

Miscellaneous prorated costs: The seller may have already covered some future costs for the home that the buyer will need to repay. For example, property taxes, homeowners’ association fees, or utility bills.

Pest inspection fee: The fee paid for having a third party assess the property for the existence of termites, dry rots, or other wood damage.

Recording fee: Cost of your city or country recording office to cover the recording of public land records.

Survey fee: Cost of the survey company to confirm the boundary lines of the property.

How much are closing costs?

While there are certainly a lot of possible fees you can face at closing time, not all of these are required services, nor are they always the responsibility of the home buyer. Still, closing costs for home buyers will probably run you about 2 percent to 7 percent of your home’s purchase price. If you’re paying cash for the property instead of getting a loan, your closing costs will be significantly lower.

You can certainly use a closing cost calculator to help estimate closing costs, but you won’t really know how much yours are going to be until close to closing time. To prepare, just be sure not to spend all your available cash on the down payment and to negotiate on closing costs with the seller where you can.