You decided to make the leap from renting to owning your own home. You figured out how much you could afford, and you sifted through tons of listings until you found the home of your dreams. Now, you’re trying to make sure that you’re ready for what comes next. Preparing for closing is a big part of that. When are closing costs due?
When Are Closing Costs Due?
As The Balance explains, closing costs are the expenses associated with the real estate transaction. Both the buyer and the seller generally pay at least some portion of these costs, but how they’re split is negotiable. When are closing costs due? They’re paid at the closing table.
The Price of Closing Costs
On average, a homebuyer should expect their closing costs to fall somewhere between two and five percent of their loan amount, according to NerdWallet. What does that mean for your wallet? If you’re purchasing a $200,000 home, you should prepare for closing costs ranging from $4,000 to $10,000. However, the terms of your bargain can change the amount of your closing costs. You may be able to lower your closing costs by negotiating lower fees or bargaining with the seller to pay more of the closing costs.
A Closer Look at Closing Costs
What are the costs that get bundled into closing costs? The exact list varies depending on the services needed to complete your transaction, but Investopedia provides a list of common closing costs:
- Appraisal Fee: This is the fee charged by a property appraisal company to assess the home’s fair market value.
- Closing Fee: A closing requires a lot of work, and it comes at a cost. This is the price tag for that service, and it’s paid to the title company, escrow company, or law firm.
- Credit Report Fee: This charge is for pulling your credit reports while processing your loan application.
- Discount Points: These are optional points you can purchase from your lender to reduce your interest rate.
- Escrow Deposit: Lenders often require a deposit of two months of insurance and property tax payments.
- Flood Determination and Monitoring Fee: If the property is near a flood zone, this inspection may be required.
- Homeowners Insurance: Expect to pay the first year’s premium.
- Lawyer Fee: If you have a real estate lawyer involved, their fees may be collected at closing.
- Lender’s Title Insurance: A required fee is paid to the title company to safeguard the lender in the event of a problem with the title.
- Owner’s Title Insurance: An optional fee protects the homebuyer’s interests in the event of a problem with the title.
- Origination Fee: This fee is for the lender’s administrative costs.
- Pest Inspection: Charges for professional pest inspections are required in some states. They may also be required by certain loan programs.
- Prepaid Daily Interest Charges: This is for the mortgage interest that will accrue between closing and your first payment.
- Private Mortgage Insurance: If private mortgage insurance is needed, your initial payment may be due at closing.
- Property Tax: As the owner, property taxes become your responsibility.
- Recording Fee: There’s a charge for recording the sale in public land records.
- Survey Fee: These monies are paid to the survey company for checking property lines and verifying its boundaries.
- Title Search Fee: This fee is paid to the title company for conducting the title search.
The Pros and Cons of Financing Closing Costs
You can bring a check to closing to pay for closing costs. Lenders may also allow you to roll the costs into your loan. As SmartAsset notes, both paths have their pros and cons. Bringing a check lets you put the matter behind you, but it can take a bite out of your wallet. Financing your closing costs means that you don’t have to come up with as much cash at closing, which can be a nice perk if making a down payment has depleted your savings. However, adding these costs to your loan raises the amount that you’re borrowing. You’ll need to pay back more money, and you’ll also be paying interest on a larger sum. Is financing your closing costs a good idea? If you believe the extra time is worth the extra cost, it may be. If not, you may be better off paying the costs at the closing table.