All the paperwork is drawn up, inspections have been done, and you are ready to move into your new home. There is one final step, the closing. This is the process when you obtain full ownership of the home. It requires lots of signatures and the payment of closing costs. What are closing costs? Closing costs are the fees charged in excess of the purchase price of the home. The majority of these fees are paid by the buyer.
How Much Are Closing Costs?
The average amount in the United States for closing costs is 2% to 5% of the home’s purchase price. Specifically, Bay Area closing costs range from 1% to 3%. Closing costs vary depending on your particular transaction and from city to city. There are a variety of state-required inspections and taxes that would change depending on where you choose to purchase a home.
What Are the Closing Cost Fees?
The fees associated with closing on a home come from a variety of sources. Some fees are paid by the seller, but most will fall on the buyer to take care of. Depending on your circumstance, your agent may be able to negotiate to have the seller pay more of the closing costs than is typical.
- Appraisal Fee: This fee is charged to have a professional come to evaluate the worth of the home.
- Home Inspection: A lender will require the home to be inspected before issuing any loan associated with purchasing the home.
- Title Search & Insurance: The title search is done to confirm the person selling the home is the actual owner. Insurance is then purchased on the title to protect you from anyone coming forward after the closing and claiming they are the rightful owner.
- Property Taxes: The buyer typically pays 2 to 6 months’ worth of property taxes in advance, at closing.
- Loan Origination Fee: This covers the document preparation, notary fees, and evaluation work done by the lender for your mortgage.
- Flood or Earthquake Inspection: A certified inspector will come to evaluate your home and whether it requires specific insurance plans.
- Homeowner’s Insurance: A lender typically requires that you pay one year upfront for homeowner’s insurance at the closing.
- Underwriting Fee: This involves the research process to verify income, financial information, and employment done by your lender.
Your particular transaction may include other miscellaneous fees such as attorney fees, mortgage brokers fees, or HOA fees. The amount for each of these fees depends on the total purchase price of your home, the location, and the exact contract worked out for your transaction.
Why Are There Closing Costs?
Real estate transactions involve a variety of companies, people, departments, and agencies. Paying for everything at the closing helps to make the process go smoothly. Being aware of the fees and the estimated amount beforehand will help you to save and be prepared for the closing. You then will be able to do what you have been waiting for, move into your new home.