What Are Closing Costs?

Just what are closing costs - and how much do they cost?

Buyers know they need to save for a down payment when buying a house, but often the amount of closing cost funds needed comes as a big surprise, sometimes eating into the down payment savings. Here's some info on what closing costs are, and a rough idea of the amount they will account for at closing.

What Are Closing Costs?

Closing costs are the fees and expenses involved with the purchase of a home. They can vary by property location, type of property, lender and mortgage program. These items must be paid before you can become the legal owner of a residential property. Closing costs typically include:

• Government recording costs
• Appraisal fees
• Credit report fees
• Lender origination fees
• Title services
• Tax service fees
• Survey fees
• Attorney fees
• Underwriting fees
• Prepaid real estate taxes
• Prepaid homeowners insurance

How Much Will You Need To Budget for Closing Costs?

The costs to close are typically between 2% and 5% of the total purchase price of your home. Here’s an exmple of what you’ll need to cover your closing costs.

If you purchase a home for $400,000, based on the 2-5% estimate, your closing fees could be between roughly $8,000-$20,000. As you can see, these costs can quickly add a lot to your budget.

Bottom Line

When you apply for a mortgage, be sure your lender explains all the costs and fees associated with the closing. That way you'll be able to budget properly and be prepared to make a solid offer when you find a home.