Closing costs include a variety of expenses above the purchase price of the property. These expenses include taxes, a title search, lender costs, an attorney, title insurance, and other upfront housing expenses such as homeowners insurance.
For a first time homebuyer, closing costs can complicate the home purchase because these things have to be included in the budget. Some of these costs are non-negotiable. For example, recording or transferring taxes charged by the state or local government is a non-negotiable closing cost. Others can be negotiated, such as your lender’s fee.
The amount a buyer will pay in closing costs varies based on the size of the loan and local taxes and fees. However, a general rule is that they average 2 percent to 5 percent of the purchase price. For instance, if a house is being bought for $300,000, the total closing costs could range from $6,000 to $15,000.
The national average for closing costs on a single family home in 2018 was almost $5,800—this includes taxes, according to data provided by the company ClosingCorp.
There are essentially three sections of closing costs that buyers need to pay: lender fees, title fees, and prepaid costs. Some lenders wrap all of their costs into an origination fee, while others break them into a list of things like appraisal costs, processing fees, courier fees, transfer taxes, and administrative fees.
Meanwhile, about 70 percent of closing costs are title-related. Title insurance premiums don’t vary much, but the settlement fees can vary by several hundred dollars from one company to another. Lenders require buyers to purchase title insurance that covers the lender up to the amount loaned.
Lastly, prepaid costs are when lenders require borrowers to set up an escrow or impound account to collect homeowners insurance and property taxes.
Both buyers and sellers have expenses to pay at the settlement table, but what they pay depends on negotiations between buyers and sellers.