If you’re planning to buy a home, you’ll have a number of logistics to figure out, such as the home’s cost, the amount of financing you qualify for, whether you’ll need to make repairs, and the whole process of closing on the loan. When figuring out the overall expenses involved in purchasing a home, one of many questions you’ll have might be, “How much are closing costs?”
How Much Are Closing Costs?
When the home purchase transaction ends and the title to the property is transferred over to you, you’ll likely have a number of fees to pay. These are covered collectively by the transaction’s closing costs, which typically come out to somewhere between 2% and 5% of the total cost of the home.
For example, if you were to buy a home in San Antonio worth $150,000, your closing costs would come out to between 2% to 5% of that price. This formula could help for the lower range:
$150,000 x 0.02 = $3,000
The upper range would be:
$150,000 x 0.05 = $7,500
For that house, you’d pay between $3,000 and $7,500 in closing costs.
You can also find closing cost calculators online to help with more detailed calculations.
What’s Included in a Home’s Closing Costs?
Closing costs may include the following:
Application fees cover the cost for your lender to process your application. This fee itself may cover other costs, such as a credit check, appraisal, and so forth, so make sure you ask your lender what the fee includes. Additionally, application fees are usually negotiable, so you might be able to lower this cost or eliminate it entirely.
When determining the fair market value of the home you’re looking to purchase, you’ll need to get it appraised. Appraisal fees are paid to an appraisal company.
Along with an appraisal, the condition of your home is very important when determining the fair price of the home. Home inspections are designed to find potential issues with the property, such as needed repairs, structural or cosmetic damage, and its overall condition. Your closing costs may cover inspection fees.
To figure out the interest rate on your loan, your lender will need to find your credit score. They do this by pulling reports from one or more sources. The time and expense involved in doing so is often covered by your closing fees.
Numerous pieces of paperwork are involved in most real estate transactions, including house purchases. Many lenders will charge a fee for the time and cost involved in preparing these documents for you.
Origination fees cover the lender’s administrative costs, and they’re typically about 1% of the total purchase price of the home. In some cases, you may be able to find a lender who doesn’t charge origination fees.
Also called an exam fee, this fee is paid to the title company. The title company does a search through the house’s records to make sure no one else has a claim to the property you’re buying.
Underwriting fees go to your lender for the time it takes to research the value and risk of your loan. The underwriting process is used to determine whether to approve you for the loan.
Many additional fees may also apply at closing, depending on your lender, location, and circumstances. These may include:
- Attorney fees
- Escrow fees (paid to the escrow company for handling the closing process)
- Courier fees (for transporting documents)
- Flood determination (to see if your home is in a flood zone)
- Homeowner’s insurance
- Prepaid interest
- Property taxes
- Recording fees (for public land records)
- Transfer taxes
Not all of these will necessarily apply, but it’s good to ask about them when shopping for financing.
How to Keep Closing Costs Down
How much closing costs are will ultimately depend on your lender and the terms of the loan. Some fees, such as application fees, are negotiable, so you might be able to get those costs down. Some lenders may not even charge certain fees, including application and origination fees, so it’s worthwhile to shop for favorable mortgage terms.
Aside from that, some mortgages cover closing costs, saving you the large upfront cost when you close on the purchase. However, there is a long-term detriment to this—the total closing costs are added to your loan, and you will have to pay them back plus interest.
It might also be possible to negotiate with the seller to see if they’ll cover part (or all) of the closing costs associated with your purchase. In this case, the amount you’re charged at closing will depend on your negotiation skills (or those of your real estate agent).
In the end, always remember that your home is an investment. While it’s good to keep some of the initial costs down, you should expect to face some fees starting out.