When purchasing a home, it’s essential to understand the costs involved beyond the property price. Third parties, such as your real estate attorney and mortgage lender, provide essential services during the home buying process. These professionals charge fees for their services, which collectively make up the closing costs for finalizing the real estate transaction and securing your home loan.
What Are Typical Closing Costs?
Closing costs typically range from 3% to 6% of the loan amount. For instance, if you’re purchasing a $200,000 home, your closing costs could be between $6,000 and $12,000. The exact closing fees vary based on factors like your state, loan type, and lender.
In 2021, the average closing costs for buying a single-family home in the United States were around $6,905. Costs can vary significantly by location, with Washington D.C. having the highest average closing costs at $29,888, while Missouri had the lowest at $2,061 per home sold.
Closing Cost Process
Lenders are required by law to provide a loan estimate within three business days of receiving your mortgage application. This estimate outlines the expected closing costs and other loan details, helping you understand the financial aspects before the closing day.
Three days before the closing day, you should receive a closing disclosure form from the lender. This document details the initial and final closing costs, allowing you to review any changes. If you notice unexpected fees or significant cost increases, seek clarification from your lender or real estate agent promptly.
Why Are Closing Costs Necessary?
Despite already paying a down payment and other expenses, closing costs are necessary to cover various services and fees involved in a real estate transaction. These costs compensate individuals and entities for their efforts, services, and essential processes throughout the home buying journey.
From property taxes to insurance premiums and inspection fees, closing costs encompass a range of expenses incurred during the home purchase process.
Types of Fees With Closing Costs
When it comes to closing costs, several common fees may come your way. These fees are typically itemized in your loan estimate and closing disclosure.
Application Fee
Lenders may charge an application fee to process your mortgage application. This fee, usually nonrefundable, ensures you are financially prepared before applying for a mortgage.
Attorney Fee
A real estate attorney may charge a fee for preparing and reviewing home purchase agreements. The fee structure can vary, with some attorneys charging a flat rate and others billing hourly.
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