Closing costs are a necessary part of finalizing your home purchase, covering various fees beyond the property’s price. These expenses can add up, making it essential to plan ahead. By understanding what costs to expect, you can budget effectively, avoid last-minute surprises, and ensure a smooth closing process. Typically, closing costs are around 2% - 5% of the home's purchase price.
Being informed about these fees allows you to make smarter financial decisions, from negotiating certain costs to knowing which expenses are fixed. This guide breaks down the different types of closing costs and fees, helping you approach closing day with confidence and clarity.
Loan Fees
These are fees charged by your lender to process and fund your mortgage. They may include:
Origination Fee: A percentage of the loan amount (typically 0.5% to 1%) to cover administrative costs.
Application Fee: A fee charged for processing your mortgage application, credit check, and initial underwriting.
Discount Points: Optional upfront payments to reduce your mortgage interest rate. Each point typically costs 1% of the loan amount and reduces the interest rate by about 0.25%, but this can change depending on current mortgage rates and the market.
Underwriting Fee: Covers the lender’s cost of evaluating your financial profile and approving the loan.
Title Fees
Title fees ensure that the property’s ownership is legally transferred to you and that your investment is protected. These may include:
Title Search Fee: Pays for a review of public records to confirm the seller has the legal right to sell the property and that there are no outstanding liens or ownership disputes.
Title Insurance Premium: Covers both lender’s title insurance (required) and owner’s title insurance (optional but recommended).
Title Settlement Fee: Covers the cost of the title company handling the closing process and preparing necessary documents.
Escrow Fees
Escrow services are used to hold funds and documents securely until the transaction is complete. Escrow-related fees may include:
Escrow Service Fee: Charged by the escrow company or closing agent for managing the closing process and disbursing funds appropriately.
Attorney Fees (if applicable): Some states require an attorney to be present at closing, and their fees are part of the escrow costs.
Prepaid Costs (Recurring Costs You Pay Upfront)
These are ongoing expenses related to homeownership that must be prepaid at closing to ensure they are covered for the initial months. They include:
Property Taxes: Typically, three to six months’ worth of property taxes are collected upfront and deposited into your escrow account.
Homeowners Insurance: Lenders require proof of homeowners insurance before closing. You may need to pay one year’s premium upfront.
Prepaid Interest: Covers interest charges on your loan from the closing date until the start of your first full mortgage payment.
Government Fees & Transfer Taxes
These costs vary by state and locality but may include:
Recording Fees: Charged by local government offices to record the property’s deed and mortgage documents.
Transfer Taxes: A state or local tax imposed when property ownership is transferred. Some states require the seller to pay this, while others require the buyer to cover it.
Mortgage Stamp or Intangible Tax: Some states charge a tax based on the mortgage amount.
HOA Fees
If the home is part of a homeowners association (HOA), you may need to pay:
HOA Transfer Fee: Covers the cost of transferring ownership records within the HOA.
Upfront HOA Dues: Some HOAs require buyers to prepay dues for the first few months.
Inspection and Appraisal Fees
These fees cover the cost of evaluating the property’s condition and value:
Home Inspection Fee: Paid to a professional home inspector to examine the property’s condition. This fee typically ranges from $300 to $500.
Appraisal Fee: Charged by the appraiser to determine the property’s market value, ensuring it supports the loan amount. This fee usually ranges from $300 to $700.
Miscellaneous Fees
Other fees may apply depending on your specific transaction:
Courier Fee: Covers the cost of transporting documents to different parties involved in the transaction.
Notary Fee: Charged for the services of a notary public who verifies the signing of important documents.
Conclusion
Closing costs can add up quickly, but Homa helps buyers find ways to save money and reduce out-of-pocket expenses. For buyers choosing to buy a home unrepresented, one of the biggest opportunities for savings comes from Homa showing you how to request the buyer’s agent commission. This significant amount can then be redirected toward closing costs. By securing this rebate, you can ease the financial burden of closing and put more money toward your new home.
Additionally, Homa's AI provides scripts to help you negotiate, including on certain closing cost fees. From requesting lender credits to asking the seller to cover a portion of closing costs through concessions, Homa helps you explore every possible way to lower your costs. By understanding where you can negotiate and leverage savings, Homa ensures you keep more money in your pocket while successfully closing on your home.