In Focus – SCCCU Blog

Closing costs are the various fees and charges you pay when you officially “close” on your home or when the keys to the front door finally arrive in your pocket. These costs are in addition to your down payment and are typically due at the time of closing. Think of them as the behind-the-scenes charges that make your mortgage happen. Some money from closing costs goes to your lender, while some go to third parties like inspectors, appraisers, and attorneys.

Typically, closing costs range from 2% to 5% of the home’s purchase price. So if you’re buying a $300,000 home, your closing costs could fall anywhere between $6,000 and $15,000. Not pocket change — and definitely something to budget for.

What Exactly Are You Paying For?
When you’re nearing the end of the homebuying process, your lender must give you two important documents: a loan estimate (you’ll have in hand early in the process) and a closing disclosure (you'll get this just before closing). The latter outlines your closing costs, but may not always capture every fee that could arise, especially from third parties.

Here’s a breakdown of the main categories of costs you'll encounter as you purchase a home:

• Typical Closing Costs: one-time fees due at closing.
• Appraisal Fee: Your lender must use an appraisal to confirm the home’s value. You should expect to spend around $700 to conduct this appraisal.
• Credit Report Fee: There’s usually a small charge to pull your credit report and score, typically around $50.
• Title Fees: These cover the title search and title insurance, which ensures no one else has a legal claim to the home. Costs generally range from $1,000 to $2,500.
• Loan Origination Fee: This is often calculated as 1% of your loan amount. So if you're putting 20% down on a $416,900 home, your loan would be approximately $333,520, making this fee about $3,335. (Some lenders calculate the fee based on the full purchase price, which would bring it to about $4,169.)
• Escrow Fee: This fee is paid to the escrow or closing agent managing the legal and financial transaction. It’s commonly calculated at about $2 per $1,000 of the purchase price, which would come to around $833 for a $416,900 house, plus a flat administrative fee that typically ranges from $250 to $500.
• Recording Fee: Your local government charges this fee to officially record the property sale. Depending on your location, it can range from $50 to $250.
• Notary Fees. You may be required to use a notary to verify signed legal documents. This may cost anywhere from $50 to $200, and may be included in your escrow or legal fees.

The following fees are prepaid items or upfront costs when you buy a home:

• Homeowners Insurance Premium: Lenders usually require buyers to prepay the first year of homeowners insurance before closing. Costs vary widely based on location and coverage, but a common estimate for a $416,900 home would be between $1,000 and $2,000 for the year.
• Property Taxes: Depending on when you close and how your local property tax cycle works, you may need to prepay several months’ worth of property taxes into an escrow account. Depending on your area, this could amount to $2,000 or more.

Can You Negotiate Closing Costs?
Yes — to a degree. You can shop around for services like title insurance to get a better deal, and in some cases, you can ask the seller to cover part (or all) of your closing costs as part of your purchase negotiation. This is what’s known as a “seller concession.” But whether or not you’re successful depends entirely on market conditions — in a hot real estate market where sellers are fielding multiple offers, it would be extremely rare to cover your closing costs. But you may have room to negotiate in a buyer’s market, where homes are sitting longer and sellers are more motivated.

Bottom Line
You’ll need several thousand dollars on hand for closing costs, so you should prepare for them early. But even with a solid estimate in hand, keep in mind that surprises can happen. For example, the title company may have additional administrative charges, or your homeowners association might have separate move-in or initiation fees. Just be sure to ask questions and understand everything on your closing disclosure document before you sign.