What To Know About Closing Costs

Now that youve decided to buy a home and are ready to make it happen, its a good idea to plan ahead for the costs that are a typical part of the homebuying process. And while your down payment is probably the number one expense on your mind, don't forget about closing costs. Heres what you need to know.

What Are Closing Costs?

Simply put, your closing costs are the additional fees and payments you have to make at closing. And while theyll vary based on the price of the home and how its being financed, every buyer has these, so they shouldnt be a surprise. Its just that some people forget to budget for them. According toFreddie Mac, this part of the homebuying process typically includes:

• Application fees
• Credit report fees
• Loan origination fees
• Appraisal fees
• Home inspection fees
• Title insurance
• Homeowners insurance
• Survey fees
• Attorney fees

Some of these are one-time expenses that are baked into your closing costs. Others, like homeowners insurance, are initial installment payments for ongoing responsibilities youll have once you take possession of the home.

How Much Are Closing Costs?

The same Freddie Macarticlegoes on to say:

Closing costs vary greatly depending on your location and the price of your home. Typically, you should be prepared to pay between 2% and 5% of the home purchase price in closing fees.

With that in mind, heres how you can get an idea of what youll need to budget. Lets say you find a home you want to purchase at todaysmedianprice of $422,600. Based on the 2-5%Freddie Macestimate, your closing fees could be between roughly $8,452 and $21,130.

But keep in mind, if youre in the market for a home above or below this price range, your numbers will be higher or lower.

Tips To Reduce Your Closing Costs

If youre wondering if theres any way to inch that down a little bit, NerdWallet lists a few things that could help:

• Negotiate with the Seller: Some sellers are willing to cover part or all of these expenses especially since homes are staying on the market a bit longer now. Sellers may be more motivated to compromise, and youll find you have a bit more negotiation power. So dont hesitate to ask them for concessions like paying for the home inspection or giving you a credit toward closing costs.
• Shop Around for Home Insurance: Since rising home insurance is a challenge in many areas of the country right now, take the time to get a clear picture of all your options. Each insurance company offers their own policies and coverage, so get multiple quotes and see how they compare. Choosing a policy that provides reliable coverage at a competitive rate can make a difference.
• Look into Closing Cost Assistance: Just like there are programs out there to help with your down payment, options exist to get support with closing costs too. While theyll vary by area, there are programs for various income levels, certain professions, and specific towns or neighborhoods too. If you want to learn more, Experian says:

Your real estate professional should be able to steer you toward applicable programs, and the U.S. Department of Housing and Urban Development (HUD) maintains a helpful resource for finding homebuying assistance programs in every state.

Bottom Line

Planning for the fees and payments you'll need to cover when you're closing on yourhomeis important and it doesnt have to be a big surprise. For more tips and expert advice, partner with a team of trusted real estate professionals, including a trusted agent and lender.