Closing Costs: How Much Should You Expect to Pay?

Closing costs can be confusing.

Not only do they cost you an additional few thousand dollars come closing day; they also cover fees and expenses you’ve likely never heard of, making them even more perplexing for a first-time buyer.

But knowing what your closing costs will come out to – at least a roughly, is crucial to a smooth home buying process (not to mention ensuring you have enough money to make it happen.)

So what can you expect to pay on closing day? Let’s break it down.

Estimated Closing Costs

While there’s no way to tell you exactly what your closing costs will be, as that depends on your home’s price and the deal you’ve negotiated with the seller, by most accounts, they’ll amount to around 2 to 5 percent of the total purchase price. If you’re buying a $200,000 home, that’s between $4,000 and $10,000.

Here are some of the fees that may be included in that:

• Application fee, for the lender who processed your loan application
• Survey fee, charged by your city or county – whichever records your land records and deeds
• Closing fee, paid to the title or escrow company handling your closing
• Origination and underwriting fees, to cover administrative costs for the lender originating your loan
• Appraisal, to ensure you’re buying a home at fair market value
• Survey fee, to confirm your property lines and fences
• Property taxes, if taxes are due within 60 days of your purchase
• Courier fee, if documents need to be transported between locations
• Attorney fee, if your state requires your purchase documents be reviewed by an attorney
• HOA transfer fees, if your property is in a neighborhood with a Homeowner’s Association in place
• Title insurance, to protect the lender from title-related problems
• Points, essentially prepaid interest payments on your loan
• PMI or Private Mortgage Insurance, which is required if you’re putting less than 20 percent down
• Transfer taxes, or the tax charged when the home changes owners

There are a few other charges you may incur depending on details of your home purchase. If you have an FHA loan, you’ll need to pay the Up-front Mortgage Insurance Premium, which equals 1.75 percent of your loan. You will also likely need to cover the costs of a home inspection, though these are often paid outside of your closing transaction to a third-party provider.

Closing Costs Aren’t Set in Stone

Remember, like anything in real estate, closing costs are negotiable. If you’re worried about costs, talk to your real estate agent about negotiating with the seller on your behalf. They may be willing to cover some of the expenses to ensure the deal goes through.

Alejandro Escamilla