Paying for closing costs is just a reality of life that comes with buying real estate. There’s no escaping it, but you can shop around to reduce the expense of this obligation.
For first-time buyers, it’s worth stepping through this part of a property purchase.
Closing costs include legal and title search fees, required insurances, transfer taxes (if applicable) and any bank levies and costs that may be applicable to secure your loan and finalize the transaction.
The overall cost can be anything from 1%-5% of the purchase price – so it’s not loose coins.
Industry researcher CoreLogic estimates closing costs average $6,900 when transfer taxes are included.
Colorado and California have among the lowest average closing costs at 1% or less, while Washington DC and Delaware might sting you 3.9% and 5.4% of the purchase price respectively.
So, you can see why it pays to carefully select folks like attorneys and conveyancers to minimize your costs.
Aggregator Zillow says its research shows buyers find closing costs one of the most stressful aspects of a purchase.
You can avoid the stress, however, by using a closing cost calculator. One is featured on the Zillow site.
Be aware that on “Closing Day” you’ll have to prepay for the month the interest on the loan, property taxes and homeowners’ insurance. That’s going to be quite a lot of money.
Here is each closing cost, and a quick recommendation.
Third-party services – Many lenders have alliances with service providers and will recommend them to you. You’re not obligated to use them. Instead, seek recommendations from friends and family. However, make sure your lender will agree to work with your chosen providers. The types of services you’ll be seeking are below.
Title search – Also known as conveyancing, this service will include title search and title insurance. Essentially, this process ensures the property is legitimate, and there is no encumbrance or debt against it for which you might become liable as the new owner.
Insurance – Every lender will demand you insure your home for the entirety of the loan. If you already have coverage for your car, you might get a good deal by packaging them together.
Deal coordination – Conveyancers or title insurance companies will conduct the contract exchange and finalization of a legal purchase. In some jurisdictions, this responsibility falls to escrow agents or attorneys.
Sundry expenses – Nobody is doing any of this for free. So expect to pick up costs for courier fees, funding fees and other services. You should ask your lender about all these fees before applying for a loan.
No fee strategy – You can seek a “no-fee loan”. However, the Federal Consumer Financial Protection Bureau says these usually come with a higher interest rate. Overall, you’ll probably be better to budget for these fees and pay them upfront. If they’re part of a loan, you’ll pay additional interest.
NOTE: The information in this article is general in nature and provided as a market overview only. Always consult your financial advisor or accountant for advice specific to your personal circumstances.