As you prepare to buy your first home, you need to be mentally and financially prepared to pay more than just the down payment. Closing costs are also due when you purchase your home, and the more you understand about them the better prepared you can be for your exciting venture into homeownership.

What are closing costs, and how much will they be? Keep reading to find out.

What are Closing Costs?

Closing costs are the fees you pay to the lender for the service of originating and facilitating your loan. There are many fees included in closing costs, including:

• Appraisal fees, required by most lenders to ensure that the loan amount is justified by the value of the home
• Application fees, which cover the cost to review a loan application
• Home inspection fees, covering the inspection of the property to uncover any unknown damage, hazards, or other issues with the home
• Discount points, which can be purchased to lower the interest rate in increments of 0.25%
• Escrow funds, held in an account to pay taxes, HOA fees, or other associated costs
• Loan origination fees, paying for the underwriters and lenders’ other costs
• HOA transfer fees, which may apply in the case of a home that is a part of a home owners’ association
• Private mortgage insurance (PMI) premiums, only relevant when a down payment of less than 20% is made
• Title searches, to uncover any potential issues with title
• Title insurance, paid once at closing to insure the lender if you lose your home to a title claim
• Taxes
• Credit report fees, a minimal fee associated with your credit report at pre-approval and final approval

How Much are Closing Costs?

The amount you pay in closing costs will vary depending on the purchase price of your home and your lender. In some markets, buyers can negotiate for some of the closing costs to be covered by the seller. In a seller’s market, like we are seeing now, this is unlikely. Speak with your real estate agent to find out if you are in a unique situation where you may be able to negotiate for this.

In general, you can expect to pay between 3% and 6% of the purchase price of the home in closing costs.

Who Pays Closing Costs?

Closing costs are paid by both buyer and seller. The buyer is responsible for most of the closing costs, but this can be negotiated. When a seller agrees to cover some of the buyer’s closing costs, it is called a seller concession. This benefits both parties in a buyer’s market because the buyer owes less at closing and the seller is able to sell the property more quickly in a market that is making the transaction difficult.

Different types of loans have different guidelines for seller concessions, so it is best to find out what mortgage options you are pre-approved for in order to be a well informed negotiator. In some cases, your closing costs are negotiable, and there are also some closing cost assistance programs available for well qualified applicants. Talk with your loan officer about what options are available to you if seller concessions are not a realistic strategy.

When Will I Pay Closing Costs

Closing costs are due at closing. When your escrow period has ended, you will attend a meeting to sign all of your documents and pay your down payment and closing costs. Before this point, you will find out the exact sum you are required to pay so that you can have a money order ready with the right amount.

For more information about buying your first home, talk with one of our loan officers. You can schedule a meeting today to get started on your journey towards homeownership!