Budgeting for closing costs
When you buy a home, you’ll need to account for closing costs, which can run 2 to 5 percent of the sale price. Average closing costs in the U.S. were $3,700 in 2016, according to Zillow. They can include title insurance, attorney fees, appraisals, taxes and more. Closing costs vary and may be affected by the price of the home, lender requirements, home location and other factors. We’ve put together a guide to help you get a sense for what to expect, but be sure to talk to your lender about specifics.
What makes up your closing costs
- Appraisal and survey fees. Fees vary but are usually several hundred dollars.
- Closing or escrow fee. This is calculated based on purchase price.
- Homeowners insurance. The first year is generally paid at closing.
- Title insurance. Policies for both the buyer and lender are calculated based on the purchase price.
- Property tax. Usually, 6 months of advance tax is paid at closing. Taxes vary by location.
- Processing and underwriting fees. These fees vary and go to your lender.
- Miscellaneous fees. A number of smaller fees may also be included at closing, from the cost of a credit check to the cost of registering your purchase with the local government. If you hire an attorney, his or her fees will generally be bundled into your closing costs as well.
How to estimate your closing costs
- A closing cost calculator, like this one from Bank of America, can help you estimate the amount you’ll want to budget for.
- If you’ve already started the mortgage process, you will receive a loan estimate (LE) several days after submitting an application. Your lender is required by law to give you this document.
- If you have questions or something doesn’t add up in your LE, ask your lender or attorney right away. You want to avoid surprises. Prior to closing your loan, you’ll receive your final closing disclosure listing your closing costs. It is advised you compare your closing disclosure to the LE you received when you applied for your loan.
- Once you’ve determined your closing costs, check with your closing agent about what type of payment is acceptable; generally, you’ll be asked to pay via cashier’s check.