What are closing costs when buying a house?
Buying a house involves more than just saving for a down payment. I've found that many first-time homebuyers get surprised by closing costs, which pop up at the end of their real estate transaction. These fees might seem overwhelming at first, but they're actually pretty straightforward once you break them down.
Closing Costs: Closing costs are the various fees and expenses that must be paid when completing a real estate transaction, typically including charges for loan processing, title insurance, inspections, and document recording. These costs, which are separate from the property's purchase price and down payment, are usually split between the buyer and seller according to local customs and the terms of the purchase agreement.
Breaking Down Common Closing Costs
Let's look at what you'll actually pay for at closing. I'll break this down into categories so it's easier to digest.
Lender-related fees
Your mortgage lender charges several fees for processing your loan:
Loan origination fees: Usually 0.5% to 1% of the loan amount
Application fees: Cover the cost of processing your application
Credit report fees: What lenders pay to check your creditworthiness
Points: Optional fees you can pay to lower your interest rate
Property-related fees
These fees relate directly to the house you're buying:
Home inspection: $300-$500 for a thorough examination of the property
Appraisal fees: $300-$600 to determine the home's value
Survey fees: $350-$500 if needed to verify property boundaries
Who Pays What?
The split between buyer and seller varies by location. Here in our market, buyers typically cover loan-related costs and inspections, while sellers often pay real estate commission fees and title insurance. Many items can be negotiated during the purchase process.
Average Closing Cost Expectations
You can expect to pay between 2% and 5% of your loan amount in closing costs. On a $300,000 home, that means $6,000 to $15,000. The final amount depends on:
Your location
The price of your home
Your loan type
Your down payment amount
Ways to Reduce Closing Costs
I've seen smart buyers save thousands on closing costs by:
Shopping around for lenders and comparing Loan Estimates
Asking sellers to contribute to closing costs
Closing at the end of the month to reduce per-day interest charges
Looking into first-time homebuyer programs in their area
Common Closing Cost Mistakes to Avoid
Don't fall into these common traps:
Forgetting to include closing costs in your home buying budget
Skipping the Closing Disclosure review
Accepting the first lender's offer without shopping around
Missing hidden fees in your loan estimate
Preparing for Closing Day
Make your closing day smooth by:
Bringing government-issued photo ID
Having your closing funds ready via wire transfer or cashier's check
Completing your final walkthrough
Reading all documents before signing
Frequently Asked Questions
When are closing costs due?
You'll need to pay closing costs on closing day, usually via wire transfer or cashier's check.
Can closing costs be rolled into the mortgage?
Some loan programs allow this, but it increases your loan amount and monthly payments.
How do I estimate closing costs?
Your lender must provide a Loan Estimate within three business days of your application.
Are closing costs tax deductible?
Some closing costs, like mortgage points and property taxes, may be tax deductible. Consult your tax advisor for specifics.
Ready to Start Your Home Buying Journey?
At Bellhaven Real Estate, we guide you through every step of the closing process. Our team connects you with trusted lending partners and closing agents who make the process clear and straightforward. Contact us today to start your home buying or selling journey with confidence.