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Matt Pittman

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What are closing costs?

Closing costs are fees associated at the closing of a real estate transaction. The closing point is when the title of the property is transferred from the seller to the buyer. Closing costs are incurred by either the buyer or seller.

 

What charges go into your total closing costs?

Closing costs vary widely based on where you live and the property you buy. They often include things such as:

 

How much are closing costs?

Typically, home buyers will pay between about 2 to 5 percent of the purchase price of their home in closing fees. So, if your home cost $150,000, you might pay between $3,000 and $7,500 in closing costs. On average, buyers pay roughly $3,700 in closing fees, according to a recent survey.

Lenders are required by law to give you a good faith estimate (GFE) of what the closing costs on your home will be within three days of when you apply for a loan. But these are just an estimate, and many of the fees listed on the GFE can legally change by up to 10 percent, potentially adding thousands of dollars to your final closing cost bill.

Within a day of your closing, the lender should give you a HUD-1 settlement statement, which outlines closing fees. Compare this to your GFE and ask the lender to explain what each line item on your closing costs is and why it is needed. Often, many of the fees that make up closing costs are negotiable, and some are completely unnecessary, especially things such as high administrative, mailing or courier costs charged by your lender. If the costs come in high, you can walk away from the loan; there are plenty of lenders who might be willing to offer you lower fees at closing.

 

How can home buyers avoid closing costs?

You can also avoid upfront fees by getting a no-closing cost mortgage, in which you don’t pay any of the closing costs when you close on the mortgage. Typically, when a lender offers a deal like this, it does end up costing you in the long run: The lender may charge you a higher interest rate on the loan for not paying closing costs, or the lender may wrap the closing fees into the total mortgage owed, in which case you end up paying interest on the closing costs. Finally, home buyers can negotiate with the seller over who pays these fees. Sometimes the seller will agree to assume the buyer’s closing fees.

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