In addition to your down payment, there are more charges and fees that are included in what are considered closing costs. This often comes as an unexpected expense for new homebuyers. One of the main reasons we tell homebuyers to do some extra research before buying a home.
These charges account for around 2% to 5% of the home’s purchase price, and will need to be paid in addition to the down payment on closing day.
Closing costs vary slightly, but below are some examples of what might be included:
- Appraisal Fee: A fee paid to the appraiser to estimate the fair market value of your home.
- Attorney Fees: If your state requires an attorney to be present at closing, you’ll be responsible for any applicable attorney fees.
- Credit Report Fee: A fee paid to the lender that covers the cost of pulling your credit report.
- Discount Points: An optional, upfront fee that you can pay to lower your interest rate. One point typically equals 1% of the loan amount.
- Origination Fee: A fee charged by the lender for originating or creating the loan. Typically 1% of the loan amount.
- Prepaid Expenses: Most popularly referred to as escrow. A small portion of your property taxes, homeowner’s insurance, and accrued mortgage interest is paid up front at closing to fund your new escrow account.
- Recording Fees: Fees paid to your local government for recording the real estate purchase and making it a part of public record.
- Title Service Fees: Fees paid to the title company covering the title search, title examination, title insurance, and in some states, the fee for facilitating your closing.
- Transfer Taxes: A tax imposed on the transfer of the title from the seller to the buyer.
During the purchase process, you will be given an estimate of these fees three days after your lender receives your sales contract and complete application. This document is called the “Loan Estimate”. You will also receive another document at the end of the process, closer to closing, detailing the exact amounts of these fees. This is the “Closing Disclosure.”