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When you buy or sell a home, you’ll encounter a variety of costs and fees associated with the transaction, known as closing costs. These costs can be significant and vary depending on where you live, so it’s important to understand what you can expect to pay and to budget accordingly.
One of the biggest closing costs is the commission for the real estate agent representing you in the transaction. This is typically a percentage of the sale price and is split between the agent representing the buyer and the agent representing the seller.
Other closing costs may include:
- Title insurance: This protects you against any issues with the ownership of the property, such as undisclosed liens or encumbrances.
- Escrow fees: These are fees charged by the escrow company for their services in handling the exchange of money and documents during the closing process.
- Recording fees: These are fees charged by the county or municipality for recording the transfer of ownership of the property.
- Home inspection: If you had a home inspection as part of the buying process, the cost of the inspection will be a closing cost.
- Appraisal: If you needed an appraisal of the property’s value as part of the mortgage process, the cost of the appraisal will be a closing cost.
- Mortgage points: You may choose to pay points upfront in order to get a lower interest rate on your mortgage. Each point is equal to 1% of the loan amount, so paying two points on a $200,000 mortgage would cost $4,000.
- Pre-paid interest: Depending on the timing of your closing and the start of your mortgage payments, you may need to pay pre-paid interest to cover the period between closing and the start of your mortgage payments.
- Taxes: You’ll need to pay prorated property taxes at closing, based on the number of days you own the property during the tax year.
Closing costs can add up, so it’s important to have a good understanding of what you’ll be paying before you close on a home. Be sure to ask your real estate agent and lender for a breakdown of all closing costs so you can budget accordingly.
