You’ve saved for your down payment and calculated your mortgage. But aside from the fee for your realtor, what other costs might stand between you and your new home?

Closing costs can be an unwelcome surprise for both buyers and sellers, significantly adding to the true cost of purchasing a home. Many find themselves wondering – where do all these extra expenses come from?

In this article, we’ll outline what’s included in closing costs for a home sale. From the various fees and charges to who pays them and how much they typically add to the final price; we’ll cover everything you need to know.

Understanding Closing Costs: What’s Included & Who Pays?

Closing costs are the total amount spent on processing and reviewing your mortgage. This payment is usually due at the time of signing your approved home loan, although some costs may be added to your principal and paid off over the life of your loan.

Most closing costs accrue to the home buyer, although sellers may pay some fees and, in some cases, may agree to assist the buyer with paying closing costs in order to facilitate the sale.

The following table lists the different types of fees that may be included in closing costs on your property: 

Typical Mortgage Loan Closing Costs

CategoryFee TypePurposeWho PaysEstimated Cost
Lender FeesLoan Origination FeeCovers lender’s processing costs for the loanBuyer0.5%–1% of loan amount
Application FeeCovers review and processing of your loan applicationBuyer$300–$500
Discount PointsOptional payment to lower the loan’s interest rateBuyer1% of loan amount per point
Prepaid InterestCovers interest from closing to first mortgage paymentBuyerVaries based on loan amount/rate
Private Mortgage InsuranceRequired for low down payment loansBuyer0.3%–1.5% of loan amount annually
Upfront Mortgage Insurance PaymentRequired for FHA loansBuyer1.75% of loan amount
Appraisal and Inspection FeesAppraisal FeeDetermines the market value of the homeBuyer$300–$600
Home Inspection FeeIdentifies potential property issuesBuyer$300–$500
Survey FeeVerifies property boundariesBuyer$300–$500
Title and Escrow FeesTitle Search FeeVerifies ownership and checks for liens on the propertyBuyer or Seller$200–$400
Title Insurance Protects against future ownership disputesBuyer and/or Lender$1,000–$4,000
Escrow FeesCovers services of the third-party escrow agentBuyer and Seller$500–$2,000
Government and Legal FeesRecording FeesPays for filing the property’s ownership change with the local governmentBuyer$50–$250
Transfer TaxesCovers taxes on the transfer of ownershipBuyer or Seller0.1%–2% of purchase price
Property-Related FeesHomeowners InsuranceProvides property insurance coverageBuyer$1,000–$1,500 annually (paid upfront)
HOA DuesCovers prorated homeowners association feesBuyer$200–$500 monthly (prorated at closing)
Special AssessmentsFunds community repairs or improvementsBuyerVaries (one-time or annual fee)

Tips for Negotiating Closing Costs

Closing costs add to the already heavy financial burden of buying a home. Here are some strategies to help you keep your closing costs to a minimum:

  1. Shop around for lenders: Be smart about who you choose to borrow from. Compare the origination and application fees charged by different lenders compared to the rates they are offering.
  2. Take a no-closing-costs loan: Sometimes you can apply for a loan where all the closing costs are waived in return for a higher interest rate. This can be a smart choice if you do not plan on staying in the home for long.
  3. Negotiate with the Seller: Ask the seller to pay some or all the closing costs on the home. This works best where the seller has a strong incentive to close the sale, such as in a buyer's market.
  4. Time Your Closing Date: Ensure you close on your loan near the end of the month to avoid or limit various prepaid interest costs.
  5. Challenge Unnecessary Fees: Some lenders may charge unnecessary fees, like sky-high origination costs or excessive courier fees for document transfers. Challenge these with your lender. They may relent to keep the sale of the property on track.
  6. Use Loyalty Discounts: Many credit unions and banks offer discounts on closing costs to existing members or account holders. Check if your credit union does.

Homebase: Smart Lending is Closer Than You Think

Whether you are looking to finance your first home or refinance your existing property, Homebase Credit Union has the great rates, reasonable costs, and great local service you expect from your friendly neighborhood financial co-op.

Homebase works closely with Member Advantage Mortgage (NMLS ID #1557), our trusted full-service mortgage lending affiliate, to provide our members with honest, professional advice and a wide range of mortgage products at competitive rates.*

Contact us today to find out what Homebase Credit Union and Member Advantage Mortgage can do for you or click below to learn more.

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