Closing Costs Explained - Buyer
Closing costs are expenses that home buyers typically incur at the end of the home purchase process when finalizing the sale of a property. These costs are separate from the property's purchase price and cover various fees associated with completing the real estate transaction. Here are common components of closing costs:
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Loan Origination Fees: This is the fee charged by the lender for processing the loan application, usually calculated as a percentage of the loan amount.
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Appraisal Fee: Lenders often require an appraisal to verify the property's market value.
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Credit Report Fee: The lender may charge a fee to obtain and review the buyer's credit report.
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Title Insurance: This insurance protects the buyer and lender against any issues with the title of the property.
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Escrow Fees: These cover the costs of the escrow agent who manages the closing process and ensures all documents and funds are properly handled.
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Recording Fees: Charged by the local government for recording the deed and other documents related to the property sale.
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Home Inspection Fees: While technically not a closing cost, buyers often pay for a home inspection separately to check the condition of the property.
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Property Taxes: Depending on the timing of the sale, buyers may need to pay property taxes upfront.
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Prepaid Interest: Covers the interest due on the mortgage from the closing date to the end of the month.
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HOA Dues: If the property is part of a homeowners association (HOA), buyers may need to pay dues in advance.
It's essential for buyers to be aware of these costs and budget for them in addition to the down payment. Closing costs typically range from 2% to 5% of the home's purchase price, but they can vary depending on factors such as the location of the property, the lender, and specific loan terms. Buyers should receive a Loan Estimate from the lender within three days of applying for a mortgage, which outlines the estimated closing costs they can expect to pay.
