What Every Homebuyer Should Know About Closing Costs

Before making the decision to buy a home, it’s important to plan for all the costs you’ll be responsible for. While you’re busy saving for the down payment, don’t forget you’ll want to prep for closing costs too. These funds can come from your down-payment amount. While this is good general information, you should always leverage your lender for more detailed information specific to your finances. Additionally, if you are putting an offer in on a home, your title agent can prepare a closing document that's specific to that property.

What Are Closing Costs?

“Closing costs are the fees and expenses you must pay before becoming the legal owner of a house, condo or townhome... Closing costs vary depending on the purchase price of the home and how it’s being financed”

Simply put, your closing costs are the additional fees and payments you have to make at closing. According to Freddie Mac, while they can vary by location and situation, closing costs typically include:

• Government recording costs (county recording fees, city and country transfer fees)
• Appraisal fees
• Credit report fees
• Lender origination fees
• Title services (documentation, title insurance, notary fees)
• Tax service fees
• Tax Assessments and Special Tax Assessments
• Survey fees
• Attorney fees
• Underwriting Fees

How Much Are Closing Costs?

According to the same Freddie Mac article mentioned above, Nationally closings costs are typically between 2% and 5% of the total purchase price of your home. In the Bay Area, we typically see closings costs of 2-4%. With that in mind, here’s how you can get an idea of what you’ll need to budget. Let’s say you find a home you want to purchase at today’s median price of $384,500. Based on the 2-5% estimate, your closing fees could be between roughly $7,690 and $19,225.

But keep in mind, if you’re in the market for a home above or below this price range, your closing costs will be higher or lower.

But WAIT! The NAR settlement has the potential to be a game-changer for home buyers and sellers, with a possible impact on closing costs. Here are a couple of ways we think that the NAR Settlement might change the norm with closings costs.

• Seller Concessions: Traditionally, sellers often offer concessions to buyers to help cover closing costs. With the settlement allowing sellers to contribute to buyer agent commissions, some sellers might choose to shift those funds towards closing cost concessions instead. This could benefit home buyers by reducing their out-of-pocket expenses at closing.
• Negotiation Leverage: The settlement opens the door for more negotiation around various aspects of the real estate transaction, including commission rates. If buyers are successful in negotiating a lower commission rate with their agent, they might have more room in their budget to cover closing costs themselves.

The world of real estate is dynamic, and the NAR settlement is a big shift with the potential to benefit home buyers, especially when it comes to closing costs. By staying informed about the settlement's impact on commission rates and seller concessions, you can be more proactive in managing your closing cost expenses. Remember, even a small reduction in commission fees can free up valuable funds to help you cover closing costs. So, research closing cost estimates for your area, ask questions about specific fees, and negotiate with confidence throughout the home buying process. With the right knowledge and approach, you can step into your new home feeling empowered and financially prepared.