Buying and selling a home can be a tricky, mind-numbing process, especially when it comes time to decipher the paperwork. One of the more confusing documents you’ll receive is your closing disclosure, which lays out all of the fees and cash needed to close on the deal. Before we dive deeper into the fees associated with your home buying journey, just keep in mind that the numbers you receive on your lending estimate may be different than the actual amount at closing, and your lender should explain this to you.
What Are Closing Costs?
Closing costs are the fees, taxes, dues and any other items (like your down payment) that need to be settled during the title transfer of the property that you are buying or selling. Some of these fees are home warranties, lender fees, realtor fees, and others. They’re also negotiable at the time of sale.
Closing Cost On A $217,000 Home
As of the time of this article, Zillow is reporting the average Dallas home prices at around $217,000. They also report that you can expect to pay between 2-5% of the home’s purchase price in closing costs. That comes out to about $4,340 to $10,850 in fees on top of your down payment. Like we stated before, you’ll receive a lender estimate with all your fees broken down prior to finalizing anything.
What Are Some Typical Closing Costs & Fees?
There are a few different fees that you’ll find on your closing cos: Mortgage fees, prepaid interest and insurance, third-party fees, escrow account, and any negotiated add-on fees. Here’s how they might break down.
- Mortgage fees — Points (a payment made at the time of closing, outlined in the terms of your mortgage, to reduce the interest rate); Taxes and insurance; Mortgage insurance; Lender origination fee.
- Prepaid interest and insurance — You’ll need to pre-pay the interest that will accrue between the closing date and the last day of the month; Pre-paid homeowner’s insurance.
- Third-party fees — Realtor fee, Attorney’s fee, Flood check fee, Credit report fee, Closing-escrow fee, Owner’s title insurance, State taxes, Appraisal fee, Recording fee, Tax service fee, Lender’s title insurance, Title endorsement, Homeowner’s association dues.
- Escrow account — Escrow accounts aren’t always necessary, but if you do use one, expect to put money down on homeowner’s insurance and property taxes.
- Negotiated fees —Depending on the situations of the parties represented in the sale, it might make the best sense to negotiate certain items into the closing sale. For instance, if the home inspection uncovered an issue with the house and the seller was not motivated to take care of the problem on his own, the buyer can request the seller cover the repair financially.
As we saw above, the fees included in closing costs can add up, and no matter whether you’re buying or selling, it can take a substantial chunk out of your bottom line. When appropriate, working to negotiate closing costs can maximize the return on your investment.