Maureen Harmonay - Coldwell Banker Residential Brokerage



Posted by Maureen Harmonay on 3/6/2018

Buying a home is probably the largest purchase you will make in your lifetime. In spite of down payments and monthly mortgage dues, youíll also have to plan for the fees that come with purchasing a home. These expenses are collectively known as closing costs.

Just how much can you expect to spend on closing costs when buying a house? Experts say that closing costs amount to anywhere between 3 and 5% of the cost of the home. So, if you buy a $250,000 home, you could pay as much as $12,000 in closing costs and associated fees.

Coupled with a down payment that is due at the time of signing, closing on a home can get very expensive very quickly. But weíre here to help you understand the cost of closing and how you can potentially cut some of those costs that are due at the time of signing. Read on to learn how.

What are closing costs?

There are dozens of possible expenses that may come up at the time of closing. Depending on your unique situation, you might pay for several or just a few of them. Some common closing costs include:

  • Mortgage application fee. This fee describes the cost of processing your mortgage application. Be sure to go over everything that this fee covers with your lender.

  • Attorney fee. While this fee may not always be required, it is a good idea to have an attorney review your mortgage and related documents and contracts.

  • Property tax. It isnít out of the ordinary to be asked to pay the first or first two months of your property tax at the time of closing.

  • Insurance premiums. Flood, fire, and mortgage insurance premiums may all be required to be paid at the time of closing as well.

  • Home inspection. Itís not a legal obligation to inspect a home before you buy it, but it can save you thousands of dollars in repairs if an issue is discovered after you already sign on a new home.

  • Origination fee. Not all lenders charge an origination fee, but can expect to pay up to 1% of the value of the home to cover the lenderís administrative expenses.

  • Transfer tax. This is the tax for when a property changes ownership. Each state and county charge different amounts, with some states charging no transfer tax at all.

  • Underwriting costs. This is another fee charged by your lender for the work they do to ensure you are safe to lend to.

Where you can save

We know what youíre thinking: thatís a lot of fees. The good news, however, is that you likely wonít end up paying every closing cost there is, and sometimes closing costs are negotiable.

Hereís our advice on how to reduce closing costs.

  1. Shop around. Find a lender that offers a closing cost that youíre comfortable with. Ask the lender for Good Faith Estimate (GFE). The lender is obligated by law to provide a GFE within three business days of applying for a loan.

  2. Negotiate with the lender. Since you havenít signed on the loan yet, you still have the power to negotiate. For best results, try to negotiate the smaller and more obscure fees; those that arenít as common with other lenders are more likely to be reduced or removed.

  3. Negotiate with the seller. Some costs may be negotiated with the seller depending on quickly they would like to sell the home. Negotiate things like inspection fees or transfer taxes with the seller. Or, bring up the closing costs with the seller and see if they will reduce the price of the home to accommodate for some of the closing costs.