Now that you’ve decided to buy a home and are ready to move forward, it’s important to plan for the typical costs involved in the homebuying process. While your down payment is likely top of mind, don’t overlook closing costs. Here’s what you need to know.
What Are Closing Costs?
Closing costs are the additional fees and payments required at the final stage of buying a home. While they vary depending on the home’s price and financing method, every buyer incurs these costs, so they shouldn’t come as a surprise. However, some people forget to budget for them. According to Freddie Mac, this stage of the process typically includes:
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Application fees
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Credit report fees
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Loan origination fees
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Appraisal fees
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Home inspection fees
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Title insurance
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Homeowners insurance
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Survey fees
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Attorney fees
Some of these are one-time costs factored into your closing expenses, while others, like homeowners’ insurance, are initial payments toward ongoing responsibilities you’ll have once you own the home.
How Much Are Closing Costs?
The same Freddie Mac article goes on to say:
“Closing costs vary greatly depending on your location and the price of your home. Typically, you should be prepared to pay between 2% and 5% of the home purchase price in closing fees.”
With that in mind, here’s how you can estimate your budget. Suppose you find a home priced at today’s median of $422,600. According to Freddie Mac’s 2-5% estimate, your closing costs could range from approximately $8,452 to $21,130.
Keep in mind that if you’re looking at a home priced above or below this range, your costs will be higher or lower accordingly.
Tips To Reduce Your Closing Costs
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If you’re looking for ways to reduce those costs, NerdWallet suggests a few strategies that might help:
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Negotiate with the Seller: Some sellers may be open to covering part or all of these costs, especially with homes staying on the market longer. This gives you more negotiation leverage, so don’t hesitate to request concessions like having the seller pay for the home inspection or offering a credit toward closing costs.
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Shop Around for Home Insurance: With rising home insurance costs affecting many areas, it’s important to explore your options. Each insurance company offers different policies and coverage, so gather multiple quotes and compare them. Selecting a policy that offers solid coverage at a competitive price can make a significant difference.
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Explore Closing Cost Assistance: Similar to down payment assistance programs, there are options to help with closing costs as well. These programs vary by location and may be available for different income levels, specific professions, or even certain towns or neighborhoods. To learn more, Experian suggests: