As you prepare to buy a home, having your down payment funded is essential. Are you also prepared for closing costs? Though the details of closing costs will vary significantly, it is important to know what to expect as you get ready for your exciting home purchase.

To help, we have compiled a list of frequently asked questions about closing costs so that you can feel more informed about the process.

What are closing costs?

Closing costs are the fees included in the preparation and processing of your mortgage. Your closing costs are the processing fees your lender will charge for the work involved in putting together the details of your loan, including the approval process, underwriting, appraisal, paperwork preparation, and more.

How much will my closing costs be?

Your closing costs will vary depending on a variety of factors, but a safe estimate is 3%-6% of the loan amount. For a $500,000 loan, you can expect somewhere between $15,000 and $30,000 in closing costs.

When are closing costs paid?

Closing costs are paid when you sign the documents to buy your home, also called closing on your mortgage. Your closing costs will be due at the closing meeting, where you will sign all the closing documents.

Who pays for closing costs?

This can vary depending on your unique situation. Closing costs can be covered by the buyer, the seller, or a combination of both. Asking for seller concessions can sometimes be a way to alleviate some of the responsibility to pay closing costs. In this scenario, the seller will pay some of the closing costs from the proceed of the sale.

There are limitations on the percentage of the closing costs that can be covered by seller concessions, depending on the type of loan you are getting, your down payment, and the occupancy of the property. If you are wondering whether a seller concession might work for you, talk to a profession like one of our loan officers about your unique situation.

What is included in closing costs?

You have already learned that closing costs include all of the processing fees involved in preparing a mortgage. These fees cover a variety of things, including:

Application fee: Sometimes a separate fee, and sometimes applied as a credit toward your overall closing costs
Appraisal: A required process to confirm the value of the home you intend to purchase
Closing fees: Funds that go to the escrow company that is facilitating the mortgage preparation process
Courier fee: Relevant in situations where courier services are required for transporting mortgage documents
Credit reporting fee: The cost of verifying your credit score
Discount points: A way to lower your interest rate by paying some money upfront
Escrow funds: Funds that go into an escrow account to pay for taxes, homeowners insurance, and mortgage insurance
Flood certification: A small fee that goes to the Federal Emergency Management Agency if your home is located in, on, or near a flood plain
Homeowners association transfer fee: A fee that applies to homes located in a community managed by a homeowner’s association
Homeowners insurance: Required protection for the home from any major damage; a year’s worth of insurance is often required at closing
Loan origination fee: The cost of preparing the mortgage, including underwriting and processing
Lender’s title insurance: Protecting the lender from loss in the case of a title dispute
Lead-based paint inspection: Relevant only to homes built before 1979, where there is potential for hazardous lead based paint in the home
Owner’s title insurance: An optional expense to cover you from potential title disputes
Pest inspection fee: The cost of inspecting the property for damage from or the presence of pests
Prepaid daily interest charges: Interest that will accrue between closing and your first mortgage payment, only sometimes required
Private mortgage insurance (PMI): A premium that protects the lender in the case of loan default if you are putting less than 20% down
Property taxes: Fees paid to your local government
Rate lock fee: An optional fee that is paid to guarantee your interest rate at closing by locking the rate in for a longer period of time
Recording fee: The expense to notify local government about the new ownership of the property
Title search fee: The cost of searching for claims on the title of the home that may cause an issue with new ownership
Transfer tax: Paid to your local government to cover the processing of paperwork to document transfer of ownership
Underwriting fee: The fee paid to your lender to cover the labor involved in verifying your approval status and preparing the documents
VA funding fee: Relevant to VA loans to go toward administrative costs for the VA