When you buy a house, there are certain sets of fees you need to pay. These fees (known as closing costs) are charged by both the lender and various third parties. You need to budget for closing costs when you want to buy a house, because they will be due with your down payment at the loan signing. For the most part, the person who is buying the home is responsible for the closing costs, but sometimes the seller pays a portion of the closing costs for certain loan types.
What Makes Up the Closing Costs?
- Loan origination fee, which includes your lender drawing up and processing your loan paperwork
- Attorney fees
- Credit report fee
- Inspection fee
- Title insurance fee
- Title search fee, which is when your lender pays for a background check on the title to ensure there aren’t tax liens or unpaid mortgages on the property
- Recording fee, which pays the county to record the new land records
- Underwriting fee, which is the cost of evaluating your mortgage loan
- Discount point fee, which you will sometimes pay if you have a low interest rate
How Much Are Closing Costs?
Closing costs range anywhere between two and five percent of the home’s purchase price. On average, most people end up paying around $3,700 in closing costs when buying a new home. If you’re concerned about how much your closing costs are going to be, ask your lender for a good faith estimate of what the closing costs will be within three days of the loan application. Just remember, this estimate can legally change by up to ten percent, so make sure that you have some spare money tucked away somewhere in case this happens.
Can I Avoid Closing Costs?
No, you can’t avoid paying closing costs. You can avoid paying your closing costs upfront, however, by having your lender roll the closing costs into the loan amount. This can end up costing you in the long run, though, so only do this if you truly can’t afford to pay your closing costs up front. One other option is to try to get sellers to cover the closing costs for you. Though this is uncommon, you might find that some sellers might agree to this if they’re desperate to sell the house. It never hurts to ask!
