When you purchase a home, the down payment is not the only money you’ll need to save or payment you’ll need to make. You’ll also have to worry about closing costs, which are typically not covered by your mortgage loan.

Let’s discuss closing costs so you can prepare for them.

What are closing costs?

Buying and selling real estate generates a lot of fees. Some of these fees include:

• Application fees
• Credit check fees
• Loan origination fees
• Loan underwriting fees
• Appraisal fees
• Title search fees
• Title insurance
• Title settlement fees
• Attorneys fees
• Prepaid homeowners’ and flood insurance
• Prepaid mortgage insurance
• Prepaid property taxes
• Prepaid HOA fees
• Real estate commissions
• Transfer taxes
• Per-diem interest 
• Discount points (to reduce your interest rate)
• Flood certification, if you’re buying a home in the flood zone
• Home inspections
• 4 Point and wind mitigation inspections for insurance purposes
• Mortgage rate lock fees
• Land survey fees 
• Research fees 

Usually, the buyer and the seller pay closing costs. The seller has the advantage of deducting the closing costs from the amount of money they’ll receive after the sale is complete. The buyer usually pays them upfront. 

How much are closing costs?

The typical amount is 3% to 5% of the total loan amount, with some closing costs going as high as 6%. 

Even though you will bring a single check to cover both your down payment and your closing costs, they are two separate line items. You should plan for both.

See also: How to Save for a Down Payment

How and when do you pay closing costs?

You’ll bring a check to your closing meeting. You’ll be advised of how much you’ll need prior to the meeting. Usually, you’ll bring a single certified check addressing both amounts. 

Some lenders also offer an option to roll your closing costs into your mortgage loan. Rolling closing costs into your loan can be expensive, as you’ll end up paying interest on the closing costs as well as on the cost of your loan. Nevertheless, this option can make homeownership more accessible to borrowers.

Is there any way to avoid closing costs?

Sometimes, it’s possible to structure the home purchase deal so that the seller absorbs closing costs instead of the buyer having to pay them, though that happens most often in a buyer’s market. It’s much less common in a tight seller’s market.

Some loan options allow you to roll closing costs into the loan, which may also be a possibility.

Nevertheless, it’s generally better to plan for closing costs so you aren’t blind-sided by them, and so you will retain options when the time comes. 

Have more questions about closing costs? 

Contact Alex Doce at The Doce Group today. He is more than happy to help you understand how best to plan for closing costs as you explore your loan and home purchase options.