How Are Buyer Closing Costs Calculated?

Buying a home is a big part of the American dream. Whether you’re a first-time home buyer or seasoned pro, sitting at the settlement table on closing day is a thrilling (and often life-changing) experience. If you’re going through the process of buying a home or even refinancing an existing mortgage, you’re likely wondering what your closing costs might be. It’s important to understand how settlement costs are calculated so you can have a solid idea of what to expect when it’s time to close on your home loan.

What Are Closing Costs?

Closing costs are the fees paid by the buyer and seller at the time of the real estate settlement. They’re a part of every formal real estate transaction, regardless of the type of purchase, mortgage product, or property. On average, buyer closing costs can range anywhere between 3 – 6% of the purchase price. However, they do vary according to several factors, including the amount of the loan, the type of loan, mortgage insurance, and taxes, among others.

Buyer Closing Cost: A General Overview

The total amount of closing costs is specific to each situation, buyer, and individual sale. When purchasing a new home or refinancing an existing mortgage, your overall settlement fees may include the following:

-Mortgage origination fee (typically 0.5% of the loan amount)

-Loan discount points (if applicable)

-Mortgage insurance

-Title search and recording fees

-Transfer taxes

-Lender’s title insurance

-Owner’s title insurance 

-Home appraisal fee

-Property taxes

-Homeowner’s insurance

-Boundary survey (if applicable)

-HOA fees (if applicable)

-Other administrative or settlement fees

Reviewing Closing Costs

It’s essential to review your closing costs carefully, whether you’re buying a home or refinancing your mortgage. You should receive a loan estimate from your lender about three days after submitting your mortgage application. This document typically includes all of the estimated expenses associated with closing your loan. A Closing Disclosure (CD) form should be provided to you three days prior to your closing date. The CD outlays your financial responsibilities in detail, from itemized closing expenses to monthly mortgage payment amounts. Any questions, concerns, or revisions to these details must be made before closing day.

Learn more about the closing process from the experts at Linear Title & Escrow!

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