Closing on a home is exciting! It’s also expensive.
Closing in real estate means that the sale will be finalized and the deed for the property will be transferred from the seller to the buyer. While this is definitely something to celebrate, closing does come with some associated costs.
Closing costs are fees paid out to the professionals who assisted with the sale, such as real estate agents and attorneys, along with insurance and other payments that are required upon buying the home.
And while we’ve all seen loan ads promising “no closing costs,” that typically means that a lender or whomever else is giving you a loan will let you finance the costs. This can seem like a nice option upfront, but they’ll be tacked onto the total sum of your loan, which you’ll pay interest on.
That being said, the buyer isn’t necessarily on the hook for all the closing costs for a sale. Some fees, like real estate agent commissions, are often paid by the seller. In rare cases, sellers may even offer to cover all the closing costs, for example if it will help entice buyers in a slow market.
Here are some of the closing costs you may encounter:
Loan costs: The loan origination, credit check, appraisal, and other fees that the lender charges to process and approve a mortgage.
Taxes and government fees: Cover the recording of the deed and mortgage, while the tax is on the transfer of the property.
Prepaid costs: Some lenders require a year’s worth of your homeowners and title insurance, along with your property taxes, to be deposited upfront into an escrow account. Check out our post on prepaid costs when buying a home for more info.
Real estate commission: The commission given to the real estate agents who assisted with the sale to pay them for their work.
Notary fees: Pay official notaries to notarize loan documents.
Attorney fees: Real estate attorneys are standard for sales transactions in some states and are paid for their services at closing.
Important to note: like much of the homebuying process, closings and their related costs vary widely by state and region throughout the country. You’ll want to check with your lender and agent/broker to make sure you are prepared for all of the costs.
Getting closer to closing? Check out these posts:
- Safety first: Our guide to home closings during COVID-19.
- Preparation is key: How to get ready for closing.