BlogHomebuying April 28 2021

Understanding Closing Costs

How much are the costs when buying a home and what are they for?

An important part of calculating your budget when home shopping includes considering closing costs, which are additional payments you will need to either pay upfront or roll into your loan and gradually pay off.

Both buyers and sellers have closing costs. One of the most well-known closing costs is the payment of realtor commissions, which the seller pays, but buyers have associated costs as well, and these are in addition to the cost of their down payment.

What Are Closing Costs?

As part of the mortgage and home-buying process, third parties such as mortgage lenders, title companies, and real estate attorneys may perform services or do work to help process your loan and the transaction. The fees for these services account for your closing costs, and they range from tiny fees like creating copies of documents or paying a courier, to larger fees such as loan origination fees from your lender.

Some examples of the possible costs you might encounter are:

Loan Application Fee: Some (though not all) lenders charge a fee to apply for a mortgage.

Closing Fee: The fee paid to the party who handles the closing, typically a title or escrow company.

Credit Report Fee: Your lender may charge you a small fee incurred when pulling your credit reports.

Homeowners Association Transfer Fee: Some HOAs charge a fee to handle the transfer of documents between owners.

Origination Fee: This covers the lender's administrative costs to process your loan and is typically 1% of the loan amount.

How Much Will My Closing Costs Be?

In 2020, the average closing costs required to buy a home in the US were $6,087 (included taxes paid upfront) and $3,470 (excluding taxes). As a buyer, your closing costs will typically range between 3-6% of the loan amount.

Again, it's important to plan for this amount when budgeting for the amount of cash you will need to bring to close on a home.

How Will I Pay for Closing Costs?

It is possible to get a loan without closing costs. However, your closing costs could be rolled into your mortgage loan payments, so it is not necessary to pay them upfront, but they will impact your monthly payment as part of your total loan. This will make costs higher than if you paid upfront, as you will be paying interest over the life of your loan.

Although the fees can add up and even seem daunting, closing costs are a normal part of the home-buying process and your mortgage lender can walk you through estimated costs as well as different scenarios to find the best fit for you. To clear up any questions you may have, visit us at to chat with a qualified loan officer near you.

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