Closing Costs

As a first time home buyer, you might be saving money for a down-payment on that first home. You should also save money for the closing costs as well. You might wonder what closing is and what are closing costs?

Closing is when a property title transfers from a seller to you — the buyer. The term “closing costs” does not refer to one single fee, but a collection of fees, taxes and other expenses. The closing costs get paid during the real estate transaction closing. You and the seller will pay separate closing costs before a real estate transaction completes.

Closing costs fall into three categories.

Lender Fees

The fees include application fees, attorney fees, recording fees, underwriting fees, courier fees, appraisal costs, administrative fees, processing fees, a credit check, transfer taxes, and a flood certification if required.

Title Fees

Title search, title insurance, and settlement services. Lenders make you buy the title insurance to protect their investment.

Prepaid Costs

Most lenders make you have an escrow or an impound account to collect homeowners insurance and property taxes. These escrow or impound accounts are funds lenders use to cover property taxes and the homeowner’s insurance. At the closing, you pay one year’s worth of homeowners insurance. You will deposit two homeowners insurance premiums in an escrow account.

Some costs are non-negotiable, such as some taxes enacted by the state or local government. Others, such as the lender’s fees, are negotiable. You may also be able to negotiate with the home seller or lender to cover some or all of the closing costs.

As a new home buyer, you must know that this isn’t a comprehensive list and these costs are subject to change. Sellers have a set of expenses too.

Some sellers might pay the real estate agent’s commissions, title insurance premiums, transfer taxes, recording fees, prorated taxes, HOA dues, and home warranty premiums. This isn’t a comprehensive seller’s list and these costs are subject to change from place to place. Now that you have a basic understanding, you might wonder how much are closing costs.

The amount you pay in closing costs varies according to a loan’s amount. Closing costs average two to five percent of the buying price. For example, if you’re buying a $185,000 house, the closing costs could range from $3,700 to $9,250. The percentage is negotiable too. The closing costs’ price and the list might seem daunting, but you could avoid some expenses.

You could negotiate the fees included at closing, the pricing of fees, and the possibility of no fees. You and the seller have different expenses to pay. What fees are paid depends on market conditions and negotiations between you and the seller.

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