Closing costs refer to the expenses incurred during the final stage of the home-buying v, when the sale of the property is finalized. These costs are in addition to the purchase price of the home and are typically paid at the closing table, when ownership of the property is transferred to the buyer. Here’s a breakdown of common closing costs:
1. Loan-Related Costs:
- Origination Fees: Lenders charge these fees to process your loan application and prepare the mortgage. These fees typically range from 0.5% to 1% of the loan amount.
- Appraisal Fees: Lenders often require an appraisal to determine the value of the property. Appraisal fees can range from $300 to $700, depending on the size of the home and the area.
- Credit Report Fees: Lenders will typically check your credit score before approving your loan, and this fee covers the cost of accessing your credit report.
- Underwriting Fees: This fee covers the cost of evaluating your loan application and verifying the information you provide.
2. Title-Related Costs:
- Title Search Fees: This fee covers the cost of researching the property’s title history to ensure there are no legal issues (like unpaid liens) that could affect your ownership.
- Title Insurance: Title insurance protects the buyer and lender from any future claims against the property’s title that may arise after the sale.
3. Taxes and Insurance:
- Property Taxes: Depending on when you close, you may need to pay a portion of the property taxes that are due. This is often prorated based on the date of closing.
- Homeowner’s Insurance: Lenders typically require you to have homeowners insurance in place before closing. The cost of the first year of insurance is often paid at closing.
- Private Mortgage Insurance (PMI): If your down payment is less than 20%, lenders may require PMI, which protects the lender in case you default on the loan.
4. Other Fees:
- Inspection Fees: Buyers typically pay for inspections (e.g., home, pest, or foundation inspections) to assess the condition of the property before purchase.
- Recording Fees: This fee covers the cost of recording the sale of the property with local government authorities.
- Escrow Fees: In some cases, a third-party escrow service is used to facilitate the transaction and hold funds. This service typically charges a fee.
Closing costs typically range from 2% to 5% of the purchase price of the home, depending on factors like loan type and location. It’s important for buyers to budget for these costs in addition to the down payment to avoid any surprises at closing.