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When it comes to buying a home, most people are aware that they need to plan for a down payment on their mortgage. However, a deposit isn’t the only upfront payment you’ll have to make—you’ll also have to pay closing costs.
To ensure you have enough cash to close the deal, use our closing cost calculator to estimate how much you may have to pay. With this estimate, you can factor these costs into your budget and plan to save enough money to buy the home of your dreams.
What are closing costs?
Simply put, closing costs are the various expenses associated with buying a home. These costs are charged by your lender and title company for the following services they provide during the home buying process:
- Originating your mortgage/home loan.
- Transfer of the property from the seller to the buyer.
Typically, about three business days after you apply for a loan, your lender will send you a loan estimate, which is a standardized form detailing your itemized costs.
A financial statement lists all costs and is a final version of the credit estimate. Your lender is required to provide a closing disclosure at least three business days prior to closing. This form is the most accurate representation of how much you will pay in closing costs before you actually close.
What are the closing costs?
Because closing costs are made up of a variety of fees incurred during the home buying process, they will vary depending on a number of factors such as your lender and your location.
Realtor.com estimates closing costs to be between two and seven percent of your home loan amount. This means that your closing costs could be anywhere from $6,000 to $21,000 on a $300,000 mortgage.
In 2021, ClosingCorp found that the average cost of closing a single family home was $6,905 including property transfer taxes. This is a 13% increase over the nationwide average closing cost year-over-year.
Who Pays Closing Fees?
Both buyers and sellers usually have closing costs to pay, but it is possible to negotiate this based on the market. In a seller’s market where there are more buyers than houses, it’s unlikely that a seller will be willing to pay for your closing costs.
However, in a buyer’s market where there are more homes than buyers, a seller may offer closing cost credits to make their deal more enticing. This is called a seller concession.
Typical closing costs to watch out for
Your total closing cost depends on a variety of expenses during the closing process. To give you an idea of what to look out for, we’ve listed some typical closing costs below.
- Valuation fee: An appraisal fee is the cost of hiring a professional appraiser to determine the value of the home. According to FIXR, a single-family home appraisal costs an average of $400.
- Credit check fee: Before determining if you qualify for a loan, lenders typically review your financial history to assess your creditworthiness or how reliable you will be in making repayments. Typically, it costs lenders less than $30 to conduct a credit check.
- Land survey fee: A surveyor collects this fee to check the boundaries of your property. It helps lenders confirm that your financing is correct and costs an average of $524.
- Lending fee: This is an application fee that your lender charges to create and process your home loan. The cost is generally between 0.5% and 1% of your loan.
- Mortgage Points: Also known as discount points, buy these points to lower the interest rate on your mortgage. One point corresponds to 1% of the loan amount.
- Lender Title Insurance and/or Owner Title Insurance:
- Lender title insurance protects the lender from title damage undetected by the title company and is typically a requirement for most mortgage companies.
- Title insurance protects the owner from claims against the property, but is usually optional. Most people tend to bundle the two policies together and the fee is 0.5% to 1% of the purchase price.
This is by no means a complete list of closing costs, so it’s always best to check your lender’s loan estimate or closing disclosure for a detailed list of actual costs.
How to Reduce Closing Costs: 4 Tips to Try
While it may seem like expenses just keep piling up when you’re about to close a home, it’s important to know that there are a few things you can do to reduce your expenses. Use the following tips and tricks to save money at the closing table.
1. Compare lenders
Your lender has a big impact on closing costs, so it’s important to choose one that works for you. Contact different mortgage lenders and ask what fees and interest rates they typically charge.
Some lenders may even send you a credit assessment form before you apply for a loan. All you have to do is provide some information. Lenders typically send this form about three days after you apply for a loan, but it’s worth seeing which companies offer to do this beforehand. Then you can compare forms and choose the company that works best for you.
2. Look for services
Just like you would shop around for a car or new appliances, it’s important to compare providers for all the different services you need when buying a home. Request quotes from vendors such as lawyers and surveyors so you can choose the option that works best for you.
3. Find a mortgage rebate or subsidy
Another trick to saving money on your closing costs is to check out mortgage rebates or grants from certain banks. For example, Bank of America offers discounts on mortgage fees for Preferred Rewards members or up to $7,500 in graduation credit for eligible applicants. Ask your bank or lender what discounts they can offer you.
4. Negotiate with your lender
Remember to negotiate closing costs with your lender before signing on the dotted line. Not all costs are negotiable, but fees like title insurance and some third-party services like legal services are areas where you can potentially find big savings.
Read your itemized loan proposal and closing statement carefully. Additionally, if you see multiple itemized fees from your lender that include vague descriptions like “delivery fee,” don’t be afraid to ask what they are and dispute them. The best-case scenario is that your lender removes the fee and you save money.
Frequently asked questions about closing costs
With closing costs eating up a significant chunk of your household budget, it’s natural to have more questions. Check out the answers to some common closing cost questions below.
Can closing costs be rolled into a mortgage?
Paying a down payment up front is already a big hit to your bank account, so you might be wondering if you can factor your closing costs into your mortgage. While this is possible with some lenders, not all lenders allow it.
Additionally, if you pay your closing costs into your mortgage, you are responsible for paying interest on them for as long as you have the loan. Over time, you may be more likely to pay more interest than if you had opted to prepay your closing costs.
What is a No Closing Cost Mortgage?
A mortgage with no closing costs means that the lender pays the closing costs upfront, but charges a higher interest rate on your loan. This type of mortgage can help you make fewer upfront payments, but you’ll likely be paying more interest to the lender over time.
Can sellers pay closing costs?
Sellers can choose to pay closing costs to make a deal more attractive to buyers. However, this usually occurs in a buyers’ market when inventory exceeds buyers, giving them a bargaining chip.
As 2022 began, housing markets across the country were experiencing historically low inventories. In fact, a recent report found that the US is short of nearly four million homes to meet the national housing need.
While you can ask your seller if they would be willing to pay the closing costs, it’s wise to keep your expectations realistic in a seller’s market.
Nobody wants to be unprepared at the closing table. Use our free closing cost calculator to estimate your expenses and feel prepared to close your dream home. Don’t forget to use this estimate to adjust your housing budget in the Mint app so you can meet your financial goals.
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