Once you’ve made the decision to buy a home, it’s important to plan ahead for the various costs that come with the process. While your down payment is likely your primary focus, don’t overlook closing costs. These expenses are an integral part of buying a home, and being prepared for them can save you from unexpected surprises at the end of the transaction.

What Exactly Are Closing Costs?

Closing costs refer to the additional fees and expenses required to finalize the purchase of a home. These can vary depending on the price of the property and the financing terms. Although every buyer incurs closing costs, they can sometimes catch people off guard if they haven’t factored them into their budget. According to Freddie Mac, common closing costs 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 costs are one-time fees tied directly to the purchase, while others, like homeowners insurance, are initial payments for ongoing services you'll need after you take ownership of the home.

How Much Are Closing Costs?

Closing costs typically range between 2% and 5% of the home’s purchase price. For example, if you’re buying a home at today’s median price of $422,600, your closing fees could range from approximately $8,452 to $21,130. Of course, if your target home is priced above or below this, your closing costs will adjust accordingly.

How Can You Reduce Closing Costs?

If you’re looking for ways to lower your closing costs, here are a few strategies:

• Negotiate with the Seller:
  In today’s market, where homes may be staying on the market a bit longer, some sellers are willing to negotiate. You could ask the seller to cover certain costs, like the home inspection or offer a credit toward closing fees.

• Shop Around for Home Insurance:
  With rising home insurance rates in many regions, it’s a good idea to compare quotes from multiple providers. Insurance policies vary widely, so finding one that offers solid coverage at a competitive rate can help you save.

• Explore Closing Cost Assistance Programs:
  Similar to down payment assistance programs, there are options for reducing closing costs based on income, profession, or location. Your real estate agent can help you find relevant programs, and the U.S. Department of Housing and Urban Development (HUD) offers resources for finding homebuyer assistance programs in your state.

Bottom Line

Planning for closing costs is an important part of the homebuying process. By knowing what to expect and working with experts, you can make sure you're fully prepared when it comes time to close the deal. Let’s connect to discuss how to best navigate closing costs and ensure a smooth transaction.