Closing costs are the fees and taxes associated with purchasing a home. They include searches, clearances, and reports to process the transaction. Depending on where you live and the complexity of your transaction, they can easily add up to thousands of dollars. They're generally around 3% to 6% of the purchase price of the home.
Your lender is required to give you a written, good-faith estimate of all your closing costs within three days of your applying for a loan. However, don't go into the process of buying a home without knowing about them.
Points or loan origination fees. This is an up-front payment of the interest that you owe your lender. The range that you'll have to fork over is anywhere from zero to about 3% of the loan. Remember, the more points you pay, the lower your overall interest rate will be, and vice-versa. If you're strapped for cash, you can get a loan with no points, but you'll pay a higher amount over the life of your loan. Another option is to have the seller pay these costs for you. Ask your buyer broker about broaching the subject with the sellers.
Escrow fees. These are the fees that are charged to process all of the paperwork and keep the money in a safe place while you and the seller negotiate things. Depending on the cost of your home, this can amount to a few hundred to a couple of thousand dollars.
Homeowner's insurance. Homeowner's insurance is required by the lender to protect you and them in the event your home is damaged by fire or other catastrophe. You should expect to pay between $500-$2,000 per year depending on the value of your home and your coverage.
Title insurance. This is to protect you and the lender if the person who sold you the house didn't really own it. While this is a remote possibility, it does occasionally happen. Your lender will want you to get 'title insurance' to take care of this situation should it arise. Based on the value of your home, expect to pay a one-time fee between $500-$2,000.
Property taxes. Depending on when your purchase actually closes, you may owe the previous owners for taxes that they've already paid. For example, say the old owners paid their taxes from January through June. You buy the house in April. Well, they've already paid for your taxes for May and June. You need to reimburse them for this expense. In addition you may need to prepay some taxes.
Legal fees. You may or may not need a lawyer depending on the complexity of the transaction. Frequently, home transactions just use boilerplate forms for everything. If this is the case, you will save money.
Private mortgage insurance (PMI). If you have a loan that requires it, count on paying at least a few month's premiums in advance. Some lenders will want you to pay for an entire year. You can avoid PMI if you can come up with a 20% down payment. You can also get your PMI eliminated later after you have more than 20% equity in your home through either mortgage payments or appreciation in your home. If you are including appreciation, you will need to get an appraisal of your home. Many households pay PMI long after they are required to, so be sure and push your lender to eliminate it as soon as possible.
Notary. Expect to pay about $50 for a notary.
Document prep fees. Lender and/or broker fees.
Appraisal fees. To assess the fair market value of your home.
Factual credit report fee. A verified credit report on you for the lender.
Tax service fees. Fees to collect and pay your property taxes.
Survey fee. This may sometimes be waived if an existing survey can be used.
Pest inspection fee. If your house is new, this can be waived.
State recording fees. As your state requires.