What are closing costs?
Closing costs include the myriad fees for the services and expenses required to finalize a mortgage. You’ll have to pay closing costs whether you buy a home or refinance.
Most of the closing costs fall on the buyer, but the seller typically has to pay a few, too, such as the real estate agent’s commission.
Average closing costs for the buyer run between about 2% and 5% of the loan amount. That means, on a $300,000 home purchase, you would pay from $6,000 to $15,000 in closing costs.
The most cost-effective way to cover your closing costs is to pay them out-of-pocket as a one-time expense. You may be able to finance them by folding them into the loan, if the lender allows, but then you’ll pay interest on those costs through the life of the mortgage.
When buying a home, you can comparison shop and negotiate some of the fees to lower closing costs. And some states, counties and cities offer low-interest loan programs or grants to help first-time home buyers with closing costs. Check with your local government to see what’s available.
Your lender is required to outline your closing costs in the Loan Estimate you receive when you first apply for the loan and in the Closing Disclosure document you receive in the days before the settlement. Review them closely and ask questions about anything you don’t understand.