What Are Closing Costs, and How Much Should They Be?

Closing costs are expenses above the property market price incurred by the buyers and sellers to complete the real estate transaction. The average closing costs percentage ranges between 2 and 5 percent of the mortgage balance. Therefore, you must be financially prepared for this expense when purchasing a property. 

What Is Included in Closing Costs? 

The closing costs may include loan origination fees, appraisal fees, title searches, title insurance, mortgage points, survey fees, and credit charges. 

• The loan origination fee is about 0.5 to 1 percent of the loan and includes processing and underwriting costs. Loan underwriting is part of the loan approval process when the lender checks to verify you can repay the loan. 

• Loan appraisal fees cover the cost of having an appraiser look at the property and estimate its value. As of 2022, house appraisal fees are around $300 to $450 for a single-family home.  

• Title search fees pay the title company to review, adjust, and ensure the property title. The title company performs a title search to find any potential issues with the title, and if any, they make changes and ensure the findings are correct. 

• Title insurance protects you from problems with an ownership title when buying real estate. The issues can be unpaid property taxes, fraud, forgery of previous paperwork, etc. 

• A property survey helps to confirm the fair market value of the property. The survey fees may vary, but it is usually several hundred dollars, depending on the property. 

• Mortgage points are paid directly to the lender at closing in exchange for a lower interest rate on your mortgage. 
• Attorney fees: Some states require you to involve an attorney when purchasing a property. The attorney fees may be bundled into the closing costs or paid separately as a flat fee.

Who Pays Closing Costs? 

Buyer and seller closing costs are paid based on the terms of the home purchase contract. Often, buyers' closing costs are substantial. However, the property seller is also responsible for some closing fees, depending on the purchase agreement. 

Although the buyer and seller split the closing fees, some localities have developed their practices regarding how to split the closing costs. 

Engage your real estate agent early in the buying process for a clear direction on what the closing costs look like. 

Strategies for Lowering Closing Costs

Closing costs can represent a surprising chunk of money. Generally, understanding closing costs can help you negotiate a better deal. Here are some strategies for lowering your closing costs. 

Compare Lenders 

Ask the different lenders to itemize the closing costs in a loan estimate form. The loan estimate form will help you compare and shop between lenders. Therefore, you can choose the lender who gives you reasonable rates. 

Negotiate Lender Fees

Mortgage lenders charge loan costs which include origination and underwriting fees. You may not avoid these costs, but you can try to get the lender to reduce them. It is also a good idea to compare offers from other lenders. 

Understand What the Seller Pays For 

Use the closing cost calculator to estimate what the seller pays for. You may ask the seller to chip in for your portion, which will reflect as sellers’ credits in the sale agreement. 

Consider a No Closing Cost Option 

If you do not have cash to pay the closing costs, you might consider a no closing cost option. If your lender agrees to it, they will charge a higher interest rate. The no closing cost option saves you from needing money upfront at the closing. 

Look for Grants 

Different states have down payment and closing cost assistance programs for first-time homebuyers. Explore the first-time home buyers grants available in your state. Also, consider incentives from mortgage lenders. Some mortgage lenders offer rebates as a strategy for attracting more borrowers to their portfolios. 

Conclusion 

If you are considering a mortgage to finance your home, you must look at the closing costs. The average closing costs percentages differ based on the price of the home, the location, and whether you are buying or refinancing. Homebuyers typically pay the most closing costs, leaving the seller to pay the agent’s commissions. As the buyer, try to negotiate some expenses like homeowners’ insurance and property tax escrow deposits. 

MortgageWorks offers financing for new home purchase, refinance, home equity, investment property, construction and a wide variety of loan program options to fit your every needs.

Servicing the state of California and the entire Coachella Valley, including Palm Springs, Cathedral City, Rancho Mirage, Indian Wells, Palm Desert, Desert Hot Springs, La Quinta, Indio and Coachella. Contact or call Art today @ (760) 883-5700

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.