What Are Closing Costs?
Closing costs are miscellaneous fees charged by those involved with your home sale. These commonly include your lender's processing fees, the title company's fees for handling the documentation, local government offices' fees, and a surveyor's fee.
Video: What are my closing costs?
While closing costs vary, they can add up. For example, costs could run as high as $6,000 for a home that costs $130,000. Closing costs can range from 1 to 8 percent of the home's cost, though they usually are about 2-3 percent of the total cost. If you don't have enough cash to pay closing costs, they can typically be rolled into the home loan.
Who Pays Closing Costs?
Closing costs are paid by both buyers and sellers, according to FSBOAmerica.org. The exact split of these costs varies from area to area and also depends on specific transaction agreements.
Buyers are generally responsible for mortgage and inspection fees, homeowner's insurance, transfer taxes if applicable, escrow fees and title insurance, and any attorney's fees. Sellers typically pay loan payoff fees, the real estate commission, title insurance, termite repairs, and cash payments in place of property repairs.
Home mortgage interest, points, and certain real estate tax can be deducted on your tax return. These can be deducted in the tax year that the home was purchased.
Can I Lower My Closing Costs?
Fortunately, there are ways to lower your closing costs. Here are a few tips to help minimize costs:
Shop around for a mortgage loan. It is recommended that you contact as many as
a dozen lenders before making your final selection. While interviewing
potential lenders, ask for an estimate on closing costs. Though banks are under
no obligation to provide this, many will do so. Closing costs shouldn't be the
primary focus of your mortgage shopping, but should certainly be a factor in
your decision.- Once you've narrowed down to the best estimates, negotiate for the best deal by playing lenders' offers off of each other. Understand that third-party fees are usually firm; these include title search, credit report, title insurance, appraisal, and attorney's fees.
- Once you've received your good-faith estimate from your lender of choice, examine them to make sure they don't differ significantly from the lender's initial estimate. Additional costs can be a red flag – they could indicate that your lender may not be as scrupulous as you'd like. Don't sign any agreements until you are certain you're working with the right lender.
Video: Good faith estimate
Are There Closing Costs When Paying Cash for a Home?
You must still pay closing costs if you're paying cash for your home. For example, you will likely still have recording fees for the deed and title insurance. However, since costs vary from area to area and transaction to transaction, it is best to consult your real estate agent or attorney to find out which specific fees you must pay.