If you’ve ever purchased a home, you know the closing is a big event. It can also be a spendy one. Transferring ownership of a house involves all kinds of administrative steps—you’ll be amazed at the stack of papers you get to sign—each of which comes with a price tag. As a buyer, you’ll typically pay fees related to the mortgage loan, title, and deed, along with some property assessment fees. The seller isn’t just walking away with full pockets, however. Sellers pay a commission on the sale of the home to the selling agent(s) that could range from 5 to 8 percent of the purchase price. They may also pay for a home warranty or any repairs deemed necessary by the home inspector.
Buyers customarily cover closing costs, which include all the fees for the many tasks performed in relation to processing your loan, checking your credit score, conducting a home appraisal and doing the title search. Closing costs are separate from your down payment, though you likely will be paying both at the same time. The down payment goes toward the property purchase itself, the other closing costs are related to the services performed so you can make the purchase.
Closing costs vary, but to get a rough estimate, www.homebuyinginstitute.com, “What Happens On Closing Day?” suggests multiplying your loan total by 3 percent. In high-cost areas, they note, that figure could rise to 5 percent. Under federal law, lenders are required to give you a written estimate within three days of your loan application, so you should have a pretty solid idea of what you’ll need to pay. In addition, your Realtor can be a great resource for answering questions about exactly what fees and expenses to expect at closing.
In some cases a buyer wants to explore alternatives to paying the closing costs. So it’s important to note that yes, you may ask the seller to cover closing costs. First, however, consider three questions:
A good Realtor can help you investigate the market and explore your options. Ultimately, however, the decision of whether to ask the seller to cover closing costs is up to you. If coming up with the extra money to cover the costs yourself is not realistic for you right now, you can also ask your lender to tack closing costs onto the total loan amount. This increases your mortgage loan, but not much.
Closing costs should be part of early conversations with your lender so you know what to expect and what is expected of you. Some types of loans, for instance, come with limitations on how much a seller can contribute at closing. The best advice is simple: find a Realtor and a lender with proven track records in the industry, ask a lot of questions and keep your end goal in mind.