What are closing costs and how much can a buyer expect to fork out? Closing costs are the fees paid to third parties that help facilitate the sale of a home, and they vary widely by location. But as a rule, you can estimate that they typically total 2% to 4% of the home’s purchase price. For example, on a $250,000 home, your closing costs would amount to anywhere from $5,000 to $10,000. Read on, to find out why there is such a significant range.
Both buyers and sellers typically pitch in on closing costs, but buyers carry the bigger load (3% to 4% of the home’s price) compared with sellers (1% to 3%). Some closing costs must be paid before the home is officially sold, but most are paid at the end when you close on the home and the keys exchange hands.
How much are typical closing costs for buyers?
Home buyers pay most of the closing costs since many of these fees are linked or related to the mortgage:
- A loan origination fee, which lenders charge for processing the paperwork for your loan.
- A fee for running your credit report.
- A fee for the underwriter, who assesses your credit worthiness.
- A fee for the appraisalof the home.
- A fee for the home inspection, which checks the home for potential problems.
- A fee for a title search to be certain there are not liens on the property, which would interfere with your ownership of it.
- A survey fee if it is a single-family home or townhome.
- Taxes on the money you have borrowed for your home loan.
How much are closing costs for sellers?
Here are the closing costs that sellers are typically responsible for:
- A closing fee, paid to the title company or attorney’s office where everyone meets to close on the home.
- Taxes on the home sale.
- A fee for the attorney, if the home seller has one.
- A fee for transferring the title to the new owner.
Although this may not seem like much when comparing what home buyers must cough up, keep in mind that sellers typically pay all real estate agents commissions, which can amount anywhere between 4% and 7% of the homes sale price.
Why closing costs vary
The reason for the huge difference in closing costs boils down to the fact that different cities and states have different legal requirements and fees for the sale of a home.
To estimate your closing costs, plug your numbers into an online closing costs calculator, or ask your realtor, lender, or mortgage broker for a more precise estimate. Then, at least three days before closing, the lender is required by federal law to send buyers a closing disclosure that outlines those costs once again. Sellers should also receive similar documents from their realtor outlining their own costs.
It is wise before closing, to review the documents to be certain the numbers match up to what you were originally quoted. Errors can and do sneak in, so it can pay to check one last time!