Now that you're set on buying a home, it’s important to plan for the costs involved in the homebuying process. While the down payment is likely your biggest concern, remember to factor in closing costs as well. Here’s what you should know.

What Are Closing Costs?

Closing costs are simply the extra fees and payments you'll need to handle when you finalize your home purchase. These costs can change depending on the home's price and how you're financing it, but every buyer faces them, so they shouldn't catch you off guard. However, some people might overlook them in their budget. Freddie Mac outlines that this part of buying a home usually includes:

• Application fees

• Credit report fees

• Loan origination fees

• Appraisal fees

• Home inspection fees

• Title insurance

• Homeowners insurance

• Survey fees

• Attorney fees

Some of these costs are one-time expenses included in your closing costs. Others, like homeowners' insurance, are upfront payments for ongoing obligations you'll have once you own the home.

How Much Are Closing Costs? 

The article from Freddie Mac mentions that:

““Closing costs vary greatly depending on your location and the price of your home. Typically, you should be prepared to pay between 2% and 5% of the home purchase price in closing fees.”
”

— Freddie Mac

To help you figure out your budget, let’s take an example. Imagine you’re looking at a home priced at the current median of $422,600. According to Freddie Mac’s estimate of closing costs being around 2-5%, you can expect your closing fees to fall somewhere between about $8,452 and $21,130.

If you're looking for a home that's priced higher or lower than this range, expect your costs to go up or down accordingly.

Tips To Reduce Your Closing Costs

If you're looking for ways to lower that number a bit, NerdWallet has a few suggestions that might help:

• Negotiate with the Seller: Many sellers are open to covering part or all of these costs, especially since homes are taking longer to sell now. They might be more willing to make a deal, so you may have more leverage in negotiations. Don't hesitate to request concessions, such as having them pay for the home inspection or provide a credit towards your closing costs.

• Shop Around for Home Insurance: It's a good idea to shop around for home insurance, especially with prices going up in many parts of the country. Take the time to explore your options. Different insurance companies provide various policies and coverage levels, so it's smart to get several quotes and compare them. Finding a policy that offers solid coverage at a competitive price can really pay off.

• Look into Closing Cost Assistance: Just as there are programs to help with your down payment, there are also options available for closing costs. These programs can differ depending on your location and may target specific income levels, professions, or neighborhoods. If you're interested in finding out more, Experian has some helpful information.

““Your real estate professional should be able to steer you toward applicable programs, and the U.S. Department of Housing and Urban Development (HUD) maintains a helpful resource for finding homebuying assistance programs in every state.”
”

— Experian

Bottom Line

Planning for the closing fees and payments for your new home is essential, and it shouldn’t catch you off guard. When you have the right experts by your side, you can ensure that you’re fully prepared for what’s ahead. Reach out so you have a reliable source for tips and advice.