What Are Closing Costs? How Much Are They?

Closing costs are what you pay when you close a real estate transaction, whether you’re refinancing your mortgage or buying a new home. These fees can range from 2% to 5% of your mortgage. Therefore, it is important to be financially prepared for these expenses.

What are closing costs?

Closing costs include a range of service fees associated with applying for a mortgage and closing the sale of your home. Some costs are related to the property you wish to buy – verifying an appraisal of its value and searching title documents to make sure the title is clear – others are related to the paperwork involved in the transaction, including attorney fees and origin fees and underwriting the loan.

As the name implies, transaction fees are paid at closing and usually require a cashier’s check (rather than a personal check).

Mortgage Related Fees

There are also closing costs associated with creating a mortgage, including lender fees.

  • Credit Report Fee – A credit report fee is a fee charged by your lender to verify your credit report and score. Fees can be $25 or more per borrower.
  • Servicing Fee – Lenders may charge a fee to set up the loan, called a servicing fee, usually anywhere from 0.5% to 1% or more of the amount you borrow. This fee is essentially what the lender makes money from.
  • Application Fees – Some lenders charge hundreds of dollars to process your loan application.
  • Subscription Fees – This may also be called an administration fee or processing fee and includes the cost of assessing and verifying your financial eligibility and eligibility. This can be a flat fee or expressed as a percentage of the loan, eg B. 0.5% of the amount you borrow.
  • Points – To lower your mortgage rate, you also have the option to pay another fee called mortgage points or discount points. Many lenders allow borrowers to pay points in exchange for a lower interest rate. While this will increase your closing costs, it can have a big impact on the amount of interest you pay over the life of the loan.

Additional fees

In addition to these loan and real estate related costs, you may also pay additional costs at closing such as: B. Attorney fees. Most real estate attorneys charge by the hour, and rates vary.

Some cities and states also impose fees on real estate transactions. For example, if you buy a home in Chicago, you and the seller will split the $5.25 property transfer tax for every $500 of the sale price: the buyer typically pays $3.75 and the seller $1.50.

How Much Are Closing Costs?

Closing costs are incurred when title to a property is transferred from the seller to the buyer. Total closing cost in dollars may vary by location and property value. Homebuyers typically pay closing costs of 2% to 5% of the purchase price.
The national average cost of closing a single-family home in 2020 is $6,087 with taxes and $3,470 without taxes, according to a survey by ClosingCorp, a data firm that specializes in these costs.
The survey found that the highest average closing costs (including taxes) were located in the following locations:

  • District of Columbia ($29,329)
  • Delaware ($17,727)
  • New York ($13,261)
  • Maryland ($11,709)
  • Washington ($11,513)

The states with the lowest average closing costs (including taxes) are:

  • Missouri ($1,571)
  • Indiana ($2,100)
  • Kentucky ($2,229)
  • Iowa ($2,272)
  • South Dakota ($2,276)1

Lenders are required by law to provide a credit assessment showing transaction closing costs. Under the federal Real Estate Settlement Procedures Act (RESPA), they must provide this information within three days of receiving the borrower’s loan application. At least three days before closing, the lender must also provide a closing disclosure statement detailing all closing costs. Listed fees may vary from credit estimates.

Who Pays Closing Costs?

Most closing costs are borne by the buyer, but some are borne by the seller, such as B. Broker’s commission. As a buyer, you might try to negotiate some of your costs to the seller, eg (However, you probably won’t be successful in a seller’s market.)

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