As experienced mortgage loan originators, we’ve heard stories about homebuyers being shocked by what it costs to purchase a home. We’re not talking about the price of the home. It’s the closing costs that buyers were not warned about that can change what should be a happy event into one filled with stress and anxiety. At MortgageDepot, our mortgage loan professionals make it a part of the application process to educate borrowers about closing costs to prevent “sticker shock” on the day of closing.
What are closing costs?
The fees charged by lenders and third-parties, commonly known as closing costs, can quickly add up. Closing costs usually average from 2 percent to 5 percent of the price paid for the home. That could mean a buyer being asked to come up with an additional $12,500 in closing costs for the purchase of a $250,000 home.
Typical closing costs for the purchase of a home
The biggest mistake a borrower can make is to rely upon the closing costs paid by a friend or relative as a gauge for what it will cost to close on a home. Closing costs vary depending upon the location of the property and the lender doing the financing. The list of possible closing costs is extensive and includes fees paid for the following services:
- Attorney for lender
- Attorney for buyer
- Title or settlement company
- Reserves for real estate taxes and homeowners insurance
- Home inspection and pest inspection
- Credit reports
- Recording documents
- State transfer tax
We want our buyers to have a favorable closing experience, so we review estimated closing costs with them early in the financing process to give them a good idea of what to expect. We follow this up with a review of the actual settlement or closing costs as we approach the closing date.