Buying or Selling a Home? Plan for Closing Costs

Saving for a down payment on a home purchase? You’d better carve some money from your savings to cover closing costs as well.

Realtor.com identifies closing costs as fees paid to third parties that help facilitate the sale of a home, and they vary by location and the time of year that the property is bought and sold. As a rule, you can count on spending at least two percent of the home’s purchase price in added closing costs. It could easily hit five percent, possibly a percentage point or two more. So, on a $250,000 home, your closing costs could range from $5,000 to $17,500. With such a wide range, you’ll definitely want to discuss this with your realtor and try to come up with a ballpark figure.

Closing costs will be assigned between the buyer and seller, but buyers shoulder the lion's share primarily because of the costs associated with processing the mortgage. Some closing costs are required to be paid before the home is officially bought, but most fees are paid when you close on the home and the keys exchange hands.

Here are some of the fees homebuyers should brace themselves to pay:

  • Loan origination — A fee charged for the offset of administering the cost of the loan.

  • Appraisal — A formal estimate of the market value of the home based on the comparisons of similar homes in the neighborhood.

  • Title insurance — This protects the lender and the borrower if there are disputes on ownership. The title company determines all liens and taxes to be paid in full at closing.

  • Attorney fees — Their offices will generate many of the legal documents.

  • Loan processing and underwriting — Depending on the lender, these fees may be charged to process and underwrite the loan.

  • Records filing — This is paid when a county clerk’s office records the deed of trust and warranty deed. This changes the ownership and sets the loan in place.

  • Survey — This is conducted if it's a single-family home or townhome (but not condos). This is a drawing of the boundaries of the property, which includes road access and the position of the house.

  • Home inspection — This report gives a detailed explanation of the condition of the home and what should be repaired prior to closing.

  • Property taxes and homeowner insurance — This is included in your monthly payment if the loan is escrowed. However, depending on the time of year the loan closes, a prorated portion of your annual payment will be included in closing costs.

  • Pre-paid interest — This may be collected for the adjustment made to calculate the interest on the loan for the extra number of days from the day the loan closes till the payment’s first due date.

  • Discount points — This is a fee that can help lower the interest rate, which would also reduce the monthly payments.

  • Other costs and terms, such as Private Mortgage Insurance (PMI) and Homeowner Association Dues, could be included depending on the down-payment amount and the type of property.

Here are the closing costs that sellers are typically responsible for:

  • A closing fee, paid to the title company or attorney's office where everyone meets to close on the home.

  • Taxes on the home sale.

  • A fee for an attorney, if the home seller has one.

  • A fee for transferring the title to the new owner.

  • Real estate agent commission, which can cost close to six percent of the home’s sale price, and maybe a bit more.

Remember, closing fees can vary between counties in Texas. As you move along in the homebuying process, get with your realtor and mortgage loan officer to refine original estimates for closing costs. Federal laws require home lenders to send buyers a closing disclosure that outline closing costs at least three days before closing (sellers should receive similar documents from their realtor outlining their own costs).

The Consumer Financial Protection Bureau encourages homebuyers to understand 100 percent of what they are signing at closing, and the CFBP offers a closing checklist that can be very helpful during the process.