Whether you are buying or selling a home, you’ve probably heard the term “closing costs” come up. If you haven’t, rest assured you certainly will. The thing about closing costs is a majority of people actually have no idea what they are or how much they cost.
Luckily, we’re here to help you paint a clearer picture of what closing costs are and how much they can cost you.
What are Closing Costs?
Unfortunately, buying a home isn’t as simple as obtaining a mortgage loan and paying on it monthly. There’s actually an added fee called closing costs which are technically the processing fees of the loan. However, these costs cover a bit more than just your lender servicing your loan.
A lender wants to see that the money they are allowing you to borrow is being put to a property that is worth the asking price. This is where a home appraisal comes into play. This is an evaluation of your home to make sure that the cost you are paying is justified. An appraisal will need to be done by a professional and can cost a few hundred dollars, which will be seen in your closing cost expense.
For similar reasons, your chosen lender will require a home inspection to determine if the property is structurally sound and in livable conditions. Sometimes issues can be found during the inspection process that will require the seller to fix or come to terms with a lower sales price. A home inspection can typically average at $300 to $500.
Not all closing costs include the same fees as they truly depend on where you live, the home you’re buying, and the loan you’re receiving. You may also see mortgage related fees such as a credit report, insurances, transfer fees, underwriting fees, and more. Discussing closing costs with your mortgage lender will give you the most accurate estimate of what to expect.
How Much Are Closing Costs?
Home buyers are estimated to pay 2 to 5 percent of the purchase price of their home. For example, if you are interested in buying a $200,000 home you can expect to pay anywhere from $4,000 to $10,000 in closing costs.
Again, to get the best estimate of your closing costs speaking with your loan lender will give you the most accurate total. However, you’ll want to keep in mind that some of the fees included in the estimate may not be necessary or can be negotiable. This is why it’s important to seek numerous loan lenders to obtain the lowest fees.
Who Pays the Closing Costs?
Some automatically assume that all closing costs are paid by the buyer; however, this is not necessarily true. Sellers usually cover the cost of the broker’s commission fees but depending on how urgent the seller is looking to sell the home, don’t be afraid to negotiate. All of the closing cost fees don’t need to be paid by the buyer and if you’re a savvy enough buyer, you may be able to save yourself a bit more money by negotiating for additional closing cost fees to be covered by the seller.
If you are a seller and curious as to how much you can expect to pay to sell your home, utilizing a seller closing costs calculator can easily help you obtain your expected fees.