A Quick Guide to Closing Costs

Home buyers face a long list of expenses and fees. Some of these costs are fixed, but others can be reduced with a little negotiation.

Before being handed the keys to a new home, buyers can expect an assortment of fees and expenses that could significantly drive up the cost of their purchase.

How many checks they’ll have to write, and for how much, will vary. Some of these closing costs may be fixed, while others can be reduced by shopping around for certain services or by negotiating with the seller or lender.

“There are numerous variables,” said Ray Rodriguez, the regional mortgage sales manager for New York at TD Bank. “Much depends on where you’re buying, when you’re buying and how you’re going to buy.”

Nationwide, closing costs for a single-family home, taxes included, averaged $6,044 in 2020, according to ClosingCorp, a real estate data firm based in San Diego. At the high end were the District of Columbia, averaging $28,088; Delaware, $15,614; and Washington State, $14,942. Missouri had the lowest average costs, at $1,560.

Before even starting a home search, buyers, especially first timers, should consider working with a lender and getting preapproved for a mortgage — this can help in their budgeting. As you move further along the buying process, the costs for closing will become clearer. Lenders are required to provide a loan estimate at the time of an initial application and then a “closing disclosure” with locked-in costs and specific amounts just before closing.

The loan estimate could be used to compare costs among lenders, some of whom might be willing to waive or lower certain fees, like those involving loan origination, or tacked-on costs like courier fees. In some instances, sellers might agree to absorb some of the closing costs as part of their negotiations with buyers.

“Some buyers will just concentrate on saving for the down payment,” said Andy Sachs, an agent with Keller Williams in Newtown, Conn., “but they might have to pare down the down payment to compensate for the closing costs and for other incidentals associated with their new home.”

Here is a quick look at some of the main closing costs.

Getting the Loan

Most lenders charge a fee for initiating and underwriting a mortgage. This will typically include application and commitment fees and might also involve a fee to lock in the interest rate of a loan. It is here, too, where borrowers may see a charge for mortgage discount points, which they may opt to pay to lower the rate. A point is equivalent to 1 percent of the mortgage amount and can be bought in increments. (Over the last five years, a typical 30-year, fixed-rate mortgage carried 0.5 to 0.7 discount points, according to Freddie Mac.)

“I don’t necessarily recommend that my buyers pay points,” said Mark Yecies, an owner of SunQuest Funding in Cranford, N.J., explaining that it often takes a few years to recoup the money paid out. “It may be confusing to the borrower.”

Appraisal Fee

Lenders will order an appraisal to assess a home’s value. The appraisal fee can vary, depending on the location of a property, its size and the number of units involved. The typical fee range is $200 to $700, but it can go higher. “If you’re buying, say, a $6 million property, you might pay a $2,000 fee to the appraiser,” Mr. Rodriguez said.

The appraiser will evaluate the home’s condition, among other things. “If the appraiser calls for a remediation of a problem, it usually is the seller’s responsibility,” Mr. Yecies said.

Title Search and Insurance

To ensure there are no issues with the ownership of a home, or liens or judgments against it, a title search is conducted. Buyers could theoretically do this on their own by examining public records, but most real estate and mortgage brokers recommend hiring a professional. Title companies can charge from around $150 to $500 for a title search.

Nearly all lenders will require title insurance as an added protection against any potential disputes after the closing — this is usually paid by the buyer in a one-time premium. The premiums can vary from a couple hundred dollars to a couple thousand dollars, depending on the state where the purchase takes place and the price of the property. Owner’s title insurance is optional, though often recommended, too. In many states, you can shop around for the best deals. The American Land Title Association, a trade group, has a searchable database of title insurance companies by state on its website.

To confirm the boundaries of a property, a land survey is ordered. Costs vary by marketplace, too. Professional surveys cost, on average, $400 to $700, according to Quicken Loans. “If there’s an existing survey 10 years old or less the title company might allow the use of that survey,” Mr. Yecies said. “I always recommend people get a survey. What if you have a boundary dispute with your neighbor over the placement of a fence, or who owns a tree?”

Legal Fees

Some states require that buyers have a real estate lawyer present for the closing transaction.

The lawyer will typically review all the necessary paperwork and documentation and advise on any issues. Legal fees will vary widely, usually depending on the location and the type of property being purchased. Expect to pay either a flat fee or an hourly rate, usually starting at around $150 an hour. Some law offices may offer a discount if they’re hired to represent a buyer in both the selling and purchase of a home.

Other Expenses

A credit report will be ordered to determine your creditworthiness. Some lenders may cover this cost; otherwise, expect to pay from $30 to $50 per report. You could pay more, however, if there are inaccuracies in a report that need to be corrected.

Lenders will want to know if you’re buying in a flood-prone area, based on federal flood maps, so a flood certification will be required. This typically costs $15 to $25.

There are also fees for recording the deed or mortgage. “It varies by counties,” Mr. Yecies said. And in some places, like New York, there are taxes and fees on the transfer of properties. If you’re paying $1 million or more for a home, you could be subject to a so-called mansion tax.

And speaking of taxes, buyers will be required to keep at least two months of property taxes in an escrow account, and to pay at least the first year of homeowners’ insurance before closing. Insurance costs vary by state, though the national average is $1,477 a year, according to Bankrate.com.

By Vivian Marino

Published Feb. 19, 2021 Updated Feb. 20, 2021