Understanding Closing Costs
by Ted Ricasa on May 26, 2014
VIDEO: 2-Minute House Hunter: Closing Costs
For many people, purchasing a home will be the biggest investment they make. A house is a long-term investment, one that will accrue as much as sentimental value as it does equity. When buying a home, you may be expected to cover a down payment and will definitely need to be able to make monthly mortgage payments. However, you also need to cover certain closing costs. During the excitement of the home buying process, many people overlook closing costs. By doing your research and being prepared, you can be ready instead of being caught off guard by the closing costs of your new home.
Closing costs are simply additional fees charged when finalizing the purchase of a home. For the most part, every person purchasing a new home will need to deal with closing costs. There are exceptions, but this typically involves accepting a higher interest on the mortgage or adding the closing costs to the mortgage, in which case you will end up paying interest on the closing costs. The closing costs are charged by the lender and may require payment from both the buyer and the seller in some cases.
Who Pays the Closing Costs?
If you are buying a home, you will definitely be expected to cover closing costs. However, if you are selling a home this doesn't mean you're exempt. In fact, the seller may end up agreeing to cover a portion of the closing costs or be required by law to pay for other costs associated with closing, such as the remaining amount of their loan, real estate agent fees, notary fees, title transfer fees, and if necessary, lawyer fees. The amount the seller will need to pay will vary from state to state.
The buyer's closing costs will involve a wide array of fees covering various services. As with the seller, the amount and number of fees included in the closing costs will vary depending on the state. Common fees making up the closing costs include:
- Title insurance and title transfer fees
- Attorney and recording fees
- Underwriting fees
- Home and pest inspection fees
- Homeowner's insurance
- Survey and appraisal fee
- Mortgage application fee
- Property taxes
- HOA fees
These are just a few examples of the common costs involved with closing.
How Much are Closing Costs?
The most frequent question of all regarding closing costs: How much?
This will depend on a number of factors, including the state, neighborhood, and how much, if any, of the closing costs the seller is willing to cover. The rule of thumb states that the closing costs are typically 5% of the overall cost of the home. However, in some cases the closing costs may be closer to 2% or even as high as 7%. Many banks offer closing costs free calculators on their websites and will even offer a good faith estimate. However, the actual closing costs could vary by up to 10%. If you think you may be interested in selling a home, you can contact Fast Home Help to request an all-cash quote. We're happy to answer any questions you may have about the process of selling a home.