Buying your first home is exciting, but it can also feel overwhelming, especially when it comes to closing costs. These often-overlooked expenses can add up and catch first-time buyers by surprise. The good news? With the right information, you can plan for this important step.

This guide explains what closing costs are, how much they typically cost, and tips to help you save money. Whether you’re a first-time homebuyer or just need a quick refresher, we’ve got you covered.

What Are Closing Costs?

Closing costs are the fees and expenses you pay to finalize a real estate transaction. These costs are separate from your down payment and cover services like loan processing, property appraisals, and title insurance. Most of these fees are due on “closing day,” the day you officially complete your home purchase.

Closing costs are paid to different parties, including your lender, attorneys, and government agencies. Both buyers and sellers share these costs, but buyers usually cover most of the expenses.

How Much Are Closing Costs?

Closing costs usually range from 2% to 6% of your loan amount. For example, if you take out a $300,000 loan, you can expect to pay between $6,000 and $18,000 in closing costs.

The exact amount depends on factors like:

• Loan Amount: Higher loans mean higher closing costs.
• Location: Fees vary by state and local tax laws. Buyers in places like New York or Washington, D.C., often pay more than those in states like Indiana or Missouri.
• Loan Type: Certain loans, like FHA or VA loans, have specific fees.

Within three business days of applying for a mortgage, your lender must provide a Loan Estimate (LE). This document breaks down your estimated closing costs, so you’ll know what to expect.

Common Closing Costs

Here’s a breakdown of the most common closing costs homebuyers typically face:

Property-Related Costs:

• Appraisal Fee: Pays for a professional to estimate your home’s market value. This usually costs $300–$600 for single-family homes.
• Home Inspection Fee: Optional but highly recommended to check for potential issues in the home. Costs range from $300 to $700, depending on the property size.
• Property Survey Fee: Confirms property boundaries and costs around $350 to $900, based on the complexity of the survey.

Loan-Related Costs:

• Loan Origination Fee: Charged by lenders to process your loan. This is typically 0.5%–1% of the loan amount and may include underwriting or administrative fees.
• Discount Points: Optional fees to lower your mortgage interest rate. One point equals 1% of the loan amount and typically reduces the rate by 0.25%.
• Credit Check Fee: Lenders charge $25–$50 to pull your credit report.
• Per-Diem Interest: Daily interest charged between your closing date and the start of your first payment. The amount depends on your loan balance and interest rate.

Insurance and Taxes:

• Title Insurance and Title Search Fee: Title insurance protects you and the lender from ownership disputes, while the title search ensures the seller has a clear title. Combined, these typically cost $500 to $1,500, depending on your location.
• Homeowners Insurance Premiums: Buyers usually prepay the first year of homeowners insurance, which costs about $1,200 to $1,500 annually, depending on your location and property.
• Transfer Tax: This tax is based on the home’s sale price and varies by state or local rules. It can range from a few hundred to several thousand dollars, often split between buyers and sellers.

Other Costs:

• Recording Fee: A government charge to officially record your purchase, usually around $125.
• Attorney Fees: If your state requires an attorney for the home purchase, expect to pay between $500 and $1,500.

Who Pays for Closing Costs?

Closing costs are usually shared between buyers and sellers, but most of these expenses are paid by the buyer.

Costs Paid by Buyers

Buyers are typically responsible for expenses like the appraisal fee, credit check fee, title search, title insurance, and mortgage origination fees.

Costs Paid by Sellers

Sellers usually cover the real estate agent’s commission (5-6% of the sale price), transfer taxes, and prorated property taxes.

In some cases, buyers can negotiate seller concessions, where the seller agrees to pay part of the buyer’s closing costs; this is more common in markets that favor buyers.

How to Lower Your Closing Costs

You don’t have to pay full price for closing costs. Here are a few strategies to reduce what you owe:

1. Negotiate Seller Concessions: Ask the seller to cover some of your closing costs as part of the sale agreement. Sellers may agree to this in a slower market or if the home has been on the market for a while.
2. Shop Around for Service Providers: Closing fees aren’t always set in stone. Compare prices for things like title insurance, home inspections, and appraisals to find the best deal.
3. Look for Lender Discounts: Work with lenders that offer reduced fees or special programs, such as no-loan-origination-fee options.
4. Close at the End of the Month: Closing toward the end of the month can save you money on “per-diem interest” charges, which are calculated for the days between your closing date and your first full payment cycle.
5. Research Assistance Programs: Many states and cities offer grants or low-interest loans for first-time buyers to help offset closing costs. Check your eligibility for these programs.

Little changes can make a big difference when it comes to saving on closing costs, so explore your options.

Make Closing Costs Work for You

Knowing and planning for these expenses can make the homebuying process easier and less stressful. Understanding these expenses helps you plan ahead, negotiate when possible, and make sure you’re getting the best value for your purchase.

Buy New with Hayden Homes

Ready to start your journey to a new home? Hayden Homes proudly builds quality new construction homes in Oregon, Washington, Idaho, and Montana. We’re sure you’ll find your dream home for every stage in life. Learn more about our homes, new home communities, and the homebuying process on our website.