First, closing costs are the fees and expenses paid at the end of a real estate transaction. Although both buyers and sellers have costs associated with closing, the buyer is typically faced with more.
By being better informed, you will be much more capable of cutting those costs down to size. Here’s everything you need to know:
You may be wondering what specific fees and expenses your closing costs will cover. Common charges they might include are:
- Appraisal fee– this is charged by the appraisal company for confirming a fair sale price for the home.
- Attorney fee– this is paid to the attorney for reviewing the closing documents for the buyer, seller or both.
- Credit report fee– your lender will need to check your credit history to determine the interest rate on your loan.
- Escrow deposit– your lender often has you put down a few months of taxes and insurance payments.
- Inspection fee– your lender will most likely require a home inspection to verify the property’s condition.
- Origination fee– this goes to the lender to cover the cost of processing your loan.
- Recording fee– charged by the city or county for recording your public records.
- Survey fee– this is paid to verify property lines and confirm the dimensions of the land.
- Title search fee-this is paid to the title search companies for researching the background of the title on your property.
- Underwriting fee-this goes to your lender to cover the cost of assessing your loan application.
Although these fees stand as a good foundation to understanding possible closing costs, they tend to vary based on the home buyer and their location.
Typically, they will range between 2 to 5 percent of the purchase price of the home. Many lenders offer resources and tools to make it easy for you to estimate your closing costs based on your current situation.
The Good News
The lengthy list of additional costs that come with purchasing a home can be pretty overwhelming. Luckily, there are ways to reduce these expenses.
You wouldn’t buy a car without seeing if neighboring dealers are offering insurance at a lower price. The same rule goes for closing costs! Do your research and get quotes from multiple lenders.
Negotiate with your lender
You may be pleasantly surprised with your ability to negotiate with your lender. Be sure to ask if any of the fees can be waived. Ask them to give you the Closing Disclosure form, which holds details regarding your closing costs, and compare it to the Loan Estimate. Your lender can then justify any differences.
See if the seller will sympathize with you
Sometimes sellers will offer to cover some of the closing costs. Others may even offer to lower the sale price of the home due to the intensity of closing costs. It is worth looking into.
Wait until the end of the month to close
This is the easiest tip for avoiding closing costs. If you close at the beginning of the month, you have to pay the interest for that month. However, if you pay at the end of the month, you’ll only pay one day of interest (or however many days are left in the month).
Being prepared for closing costs makes them much less intimidating and also gives you the opportunity to strategically reduce them. If you have any further questions about closing costs, feel free to contact the Mutual Title team!