Are you considering buying a home and worried about the extra fees you’ll pay during closing? If so, you’re probably wondering, “What are closing costs on a home?” 

Keep reading to discover what Champions Mortgage includes in their closing costs. As a trusted mortgage broker in Houston, we’re passionate about helping people finance their homes.

What Are the Average Closing Costs?

In general, homeowners pay between 3% and 6% of the total purchase price of the home when paying for closing costs. For example, if you’re paying $100,000 for your home, you could expect to pay between $3,000 and $6,000.

However, several factors determine how much you’ll pay for closing costs, including the lending agency, state laws, the type of loan, and the details of your deal with the seller.

What Do Closing Costs Include?

While COVID’s impact on the housing market has affected the type of homes people are looking for, it hasn’t impacted the costs associated with closing. Closing costs usually include the following and more, though the type of mortgage matters:

• An application fee, which the lender charges to process the application
• Some states require an attorney fee, which a real estate lawyer charges to prepare and review the contracts
• Also known as an escrow fee, the buyer pays the closing fee to the company handling the closing
• The company charges a courier fee for transporting any required paper documents
• The closing company might charge a credit report fee to pull credit reports from the three major bureaus
• While not all lenders require an escrow deposit, some ask for two months’ worth of property taxes and mortgage insurance payments in the escrow account before closing
• If your house is in a flood zone, you might have to pay flood determination and monitoring fees to a certified inspector to determine whether you require flood insurance
• You’ll need to provide evidence of a prepaid homeowners’ insurance premium
• You may have to pay a certified inspector to determine whether the property contains lead-based paint
• The title company requires a payment to protect both parties in case someone brings an ownership dispute
• A loan origination fee covers administrative costs, which typically equals 1% of the total loan amount
• The pest inspection fee pays an inspector to determine whether the property has termites, dry rot, and associated damage
• If the buyer makes an upfront payment, sometimes they can receive discount points, which can reduce the interest rate
• Occasionally, prepaid interest can accrue on a loan between the time you close on the property and the time of your first mortgage payment
• If you made less than a 20% down payment, your lender might require you to purchase private mortgage insurance, and you’ll pay the first month’s premium at closing
• A property appraisal fee pays an assessor to determine the home’s market value
• The closing costs often include the first 60 days of property taxes
• The city or county charges a recording fee to enter the sale into public land records
• The survey company charges a fee to confirm the home’s property lines
• The title search fee covers the expense of analyzing the records concerning the property’s ownership
• The state or local government often levies a transfer tax to transfer the title’s ownership
• The lender imposes an underwriting fee to verify the required information about the buyer, including income, employment, and credit

How To Effect Your Closing Costs

What are closing costs on a home? They’re the fees you pay to confirm the home is safe to purchase and to process the legal aspects of the contract. However, because mortgage costs differ, you can do some things to lower what you’ll pay.

Shop Around

While your mortgage lender will suggest a title company, inspector, and more, you’re allowed to find other providers. Look at a title company’s rates and how much the home inspector charges before committing to the fees. If you find companies with more affordable rates, you might save several hundred dollars on closing fees.

Schedule at Month’s End

If you schedule your closing toward the end of the month, you’ll cut down on prepaid interest charges. If you leave a lot of time between closing and your first mortgage payment, you’ll have to pay the interest that would accrue by the time of closing. When closing on a date near your first mortgage payment, you can reduce or eliminate that additional fee.

Negotiate

You can negotiate with the seller to pay some of the closing costs. Only use this option if you’re not competing for the house or the sellers want to get rid of the house quickly. For example, use this option if the house has been on the market for over 90 days.

Look Into a No-Cost Mortgage

Some lenders may offer to waive third-party fees, such as underwriting, appraisal, and processing fees. However, while it saves you money short term, it usually involves a significant increase in the interest rate, so you’ll pay more over the term of the mortgage.

Additional Tips

For more potential savings on your closing costs, consider these additional tips:

• Try to pay more than 20% down to avoid private mortgage insurance.
• Ask the lender to roll the closing costs into the mortgage. It’ll lower your immediate commitment but slightly raise your monthly payment.
• Look for grants, government programs, or other non-profits to help finance your home.

Who Pays for Closing Costs?

Both buyers and sellers pay some closing costs, though traditionally, the buyer pays more. Depending on your financial situation and the competition for the house you want, you could ask the sellers to pay some or all closing costs. However, many states regulate how much a seller can put toward closing costs, with the maximum equaling a certain percentage of the total mortgage.

Houston’s First Choice for Mortgages

What are closing costs on a home? Now you know, but if you have any questions about types of mortgage loans or want to learn more, contact Champions Mortgage online or call (281) 727-2500 to speak with us today.