What is closing costs?
Closing costs involve fees and mandatory charges in order to make the mortgage finalization and a real estate transaction a success. Both the seller and buyer incur closing costs. However, the buyer pays more closing costs than the seller. These closing costs are not part of the down payment.
How much should I expect to pay in closing costs?
You can pay these costs out of pocket or combine them with your mortgage if your mortgage lender allows it. However, closing costs will be treated as a loan if they are added to your mortgage. For this reason, you will pay interest to them during the lifetime of the mortgage which will cost you more money.
The estimated closing costs range between 2-5% of the total cost of the property. For example, let’s assume that you want to buy a house for $500,000. In this case, you would be expected to pay between $10,000 to $25,000 in closing costs.
Depending on your lender, you can pay close to 2% or close to 5%. To minimize how much you pay in closing costs, talk to your lender, and negotiate where possible. You can also get quotes from multiple lenders and choose one with the cheapest closing costs.
What are closing costs used for?
Closing costs cover services such as:
- Excise tax
- Loan processing fee
- Title insurance
- Etc
Closing
Closing is defined as the process of finalizing the sale of a property. Closing happens at a meeting between the seller, buyer, and their agents (buyer’s agent and seller’s agent). In this meeting, both seller and buyer sign closing documents accompanied by closing costs.
