As you prepare to buy a home, you’re likely thinking about your down payment. But don’t forget another important part of the homebuying process—closing costs. Let’s break down what they are, how much they typically cost, and some ways to reduce them.
What Are Closing Costs?
Closing costs are the fees and expenses you’ll pay when finalizing the purchase of your home. These vary based on the price of the home and your location, but every buyer should expect to encounter them. Some common closing costs include:
- Application and loan origination fees
- Credit report fees
- Appraisal and inspection fees
- Title insurance
- Homeowners insurance
- Attorney and survey fees
Many of these are one-time costs, while others, like homeowners insurance, are ongoing expenses you’ll continue to pay as a homeowner.
How Much Are Closing Costs?
According to Freddie Mac, closing costs generally range from 2% to 5% of your home’s purchase price. For example, if you’re buying a home at today’s median price of $422,600, you can expect to pay anywhere from $8,452 to $21,130 in closing fees. The actual amount will vary depending on your location, the specifics of the sale, and the home’s price.
Tips to Reduce Closing Costs
While closing costs are a standard part of the buying process, there are ways to potentially lower them:
- Negotiate with the Seller: Some sellers may be willing to cover part or all of your closing costs, especially in a market where homes are taking longer to sell. Don’t hesitate to ask for concessions.
- Shop Around for Home Insurance: Home insurance costs can vary widely. Get multiple quotes from different providers to find the best deal that offers the right coverage for your new home.
- Look for Closing Cost Assistance Programs: Many areas offer programs to help with closing costs, particularly for first-time buyers, certain professions, or specific neighborhoods. Ask your real estate agent or lender about options available in your area.
The Bottom Line
Closing costs are a key part of the homebuying process, but they don’t have to be a surprise. By planning ahead and exploring ways to reduce them, you can be better prepared for this exciting step. Partner with a knowledgeable real estate professional and lender to help guide you through the process and ensure everything goes smoothly.
