What You Need to Know About Closing Costs When Buying a House

So, you’ve found your dream home, negotiated the purchase price, and secured a mortgage. You might think you’re in the clear financially, but there’s a hidden cost many homebuyers overlook until the last minute: closing costs.

Understanding closing costs when buying a house can save you from financial shock as you approach your closing date. This guide will break down everything you need to know about closing costs to help you prepare financially.

What are Closing Costs?

Closing costs are all the fees and expenses buyers and sellers pay to complete a real estate transaction. These costs go beyond the home’s purchase price and encompass a wide range of expenses associated with finalizing your mortgage and transferring property ownership. They include fees for services provided by various professionals and organizations involved in the homebuying process.

Some of the most common closing costs when buying a house include:

• Legal fees
• Inspection fees
• Administrative costs
• Title insurance
• Land transfer taxes
• Property taxes

These costs can vary significantly depending on several factors, including your location, loan type, and the property you’re purchasing.

When are Closing Costs Due?

Some expenses come due before your actual closing date, including:

• Home inspection fee (paid directly to the inspector)
• Earnest money deposit (submitted when your offer is accepted)
• Appraisal fee (often collected by your lender during the loan application)
• Credit report and application fees (charged when applying for your mortgage)

These pre-closing costs are typically paid as each service is performed, rather than at the final closing.

However, most closing costs are due on the day of closing. Unlike regular bill payments, closing costs cannot usually be paid using a personal check or credit card. Most settlement agents require guaranteed funds as a cashier’s check, certified check, or wire transfer. Your lender or closing agent will provide the exact amount needed and payment instructions, usually 1-2 days before closing.

How Much Are Closing Costs When Buying a House?

Closing costs typically range from 2 to 5 percent of a home’s purchase price. On a $300,000 home, this means you could pay between $6,000 and $15,000 in closing costs when buying a house. The national average for closing costs on a single-family home is approximately $6,905, including taxes, or about $3,860 excluding taxes. However, closing costs when buying a house in high-cost areas like New York or California can easily exceed $10,000.

Most closing costs are paid by the buyer, but the seller ends up paying more in closing costs overall. How much the buyer will pay depends on the loan program, size of the loan, and lender practices. How much the seller will pay depends on what has been negotiated for concessions and agent commission.

Who Pays Closing Costs When Buying a House?

Closing Costs the Buyer Typically Pays

The buyer’s closing costs directly relate to the buyer’s mortgage and future ownership of the property and include:

• Appraisal fee
• Application fee
• Bank processing fee
• Closing attorney fee (in some states)
• Courier fee
• Credit report and credit supplement fees
• Escrow fee
• Home inspection fee (plus optional re-inspection if the seller makes improvements during the transaction)
• Homeowners association transfer fees
• Lender’s policy title insurance (plus optional owner’s policy title insurance)
• Loan discount points
• Mortgage origination fee
• Notary fee
• Recording fee

When buying a house, who pays closing costs can sometimes be negotiated as part of the offer. In a buyer’s market, you may be able to request seller concessions to cover some of your closing costs.

Closing Costs the Seller Typically Pays

Sellers also face closing costs when selling their home, though usually less than buyers. The seller’s side typically includes:

• Professional fees
• Credits toward closing costs
• Escrow and closing fees
• HOA fees
• Prorated property taxes
• Title insurance
• Transfer tax

In tough markets, sellers might offer to pay a portion of the buyer’s closing costs as an incentive. However, closing costs for buyers can’t be rolled into the mortgage unless you’re refinancing, so these concessions effectively reduce the seller’s net proceeds.

REMAX agents have the knowledge and experience to help you find the perfect home while staying within your budget, including those important closing costs. Contact us to start your homebuying journey.