What Are Closing Costs?

As it turns out, the price of a home is not always the total cost of purchasing a home. If you've never bought a home before, you'll need to know about closing costs, too. So here's a quick guide so you know what to expect!

Closing costs come into play after you've found your dream home, your loan has been approved (unless you're pre-approved), and your offer has been accepted. At this point, it's time to take the exciting next step toward homeownership, known as "the closing."

Closing, also known as settlement, is where ownership of your new property officially changes hands. While it might seem daunting, we're here to demystify it for you. As a buyer, you'll sign some paperwork and provide funds for your down payment and various closing costs. But don't worry, we'll break down those costs for you. 

  • NOTE: If you're reading this BEFORE offering on a home remember that you can sometimes negotiate with the seller to have THEM carry some or all of the closing costs, depending on the circumstances.

Closing costs encompass various fees, some related to your mortgage and others mandated by the government. These fees can vary by location, but here are the typical ones you'll want to know about:

  1. Appraisal Fee: This covers the cost of assessing the property's value, which you might have already paid during the loan application.

  2. Credit Report Fee: This fee takes care of the credit report requested by your lender. You might have already covered this in our application.

  3. Loan Origination Fee: This fee handles the lender's processing expenses, typically around one percent of your total mortgage.

  4. Loan Discount: If you've opted to purchase points to lower your interest rate, this one-time charge will apply. Each point purchased reduces your interest rate by one percent.

  5. Title Insurance Fees: These fees encompass expenses like title search, examination, insurance, document preparation, and other title-related costs.

  6. PMI Premium: If you're buying with a low down payment, expect to pay for private mortgage insurance (PMI), protecting the lender from foreclosure risks. You can usually request its removal once you have 20 percent home equity.

  7. Prepaid Interest Fee: This covers the interest from your purchase date until your first mortgage payment. Buying early in the month may result in higher prepaid interest fees.

  8. Escrow Accounts: In areas where escrow accounts are standard, your lender will set up an account for future property tax and home insurance payments. It typically includes at least one year's worth of insurance premiums and two months' property taxes upfront.

  9. Recording Fees and Transfer Taxes: These expenses relate to recording purchase documents and transferring property ownership, a requirement in most states.

  • NOTE: These costs can vary depending on your area

Again, don't forget that you can negotiate these costs with the seller during the offer stage, and in some cases, the seller might even agree to cover all the settlement expenses.

If you have your eye on a specific property and you're wondering what the actual price will be after closing costs, the best way to find out is to meet up with your Story Real Estate Guide. We can fill in the gaps for you and help you get a solid idea of what the actual cost of the home you're looking at will be.

What Questions Do You Still Have About Closing Costs?


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