Essential Insights on Closing Costs

Now that you've made the exciting decision to buy a home and are ready to move forward, it's essential to plan ahead for the various expenses that come with the homebuying process. While your down payment may be the biggest financial commitment on your mind, it's important not to overlook the often-forgotten closing costs. Here's everything you need to know.

What Are Closing Costs?

Simply put, closing costs are the additional fees and payments you must settle at the time of closing. These expenses vary based on the home’s price and how it's financed, but they apply to every buyer. The key is to ensure you're budgeting for them. According to Freddie Mac, closing costs typically include:

• Application fees
• Credit report fees
• Loan origination fees
• Appraisal fees
• Home inspection fees
• Title insurance
• Homeowners insurance
• Survey fees
• Attorney fees

Some of these are one-time expenses built into your closing costs, while others, like homeowners insurance, are initial payments for ongoing responsibilities you'll manage once you officially own the home.

How Much Are Closing Costs? 

Freddie Mac explains:

“Closing costs vary greatly depending on your location and the price of your home. Typically, you should be prepared to pay between 2% and 5% of the home purchase price in closing fees.”

To get a clearer idea of what you'll need to budget, imagine you're purchasing a home at today’s median price of $422,600. Based on Freddie Mac’s estimate, your closing costs could range between approximately $8,452 and $21,130. Of course, if you're looking at homes priced higher or lower, these numbers will shift accordingly.

Tips To Reduce Your Closing Costs

If you're curious about ways to reduce these costs, NerdWallet suggests a few strategies:

• Negotiate with the Seller: Sellers, especially in today's market where homes are taking longer to sell, may be willing to cover part or all of these expenses. With a bit more negotiation power, don’t hesitate to ask for concessions, such as the seller paying for the home inspection or offering a credit toward your closing costs.
• Shop Around for Home Insurance: Since rising home insurance is a challenge in many areas of the country right now, take the time to get a clear picture of all your options. Each insurance company offers their own policies and coverage, so get multiple quotes and see how they compare. Choosing a policy that provides reliable coverage at a competitive rate can make a difference.
• Shop Around for Home Insurance: Rising home insurance rates can be challenging, so take time to explore different policies. Each insurance company provides unique coverage, so get multiple quotes and compare. Finding a reliable policy at a competitive rate can help trim some costs.
• Look into Closing Cost Assistance: Just like down payment assistance programs, there are options to help with closing costs. These programs vary by area, income level, profession, and even neighborhood. As Experian suggests, your real estate professional can help you find applicable programs, and the U.S. Department of Housing and Urban Development (HUD) offers a helpful resource for locating homebuying assistance programs nationwide.

As Experian suggests, your real estate professional can help you find applicable programs, and the U.S. Department of Housing and Urban Development (HUD) offers a helpful resource for locating homebuying assistance programs nationwide.

Bottom Line

It's crucial to plan ahead for the fees and payments you'll need to cover when closing on your home, so these costs don't catch you off guard. Proper preparation makes the process smoother, and there are ways to reduce or manage these expenses. For additional tips and expert advice, partnering with a team of trusted real estate professionals, including an agent and lender, can help ensure a successful and less stressful homebuying experience.