What Are Closing Costs?

For many people, envisioning the experience of sustained joy in their life connects with their vision of the American Dream. As Investopedia detailed, upward mobility tends to be a recurrent theme in the American Dream concept. For many so-called dreamers, they want their lived experiences to reflect mutually reinforcing notions of both homeownership and personal happiness. And despite the considerable amount of real estate activity occurring in the United States, including rising rents in many states, incentives for home purchases and more, many American dreamers are on course to graduate to the status of American doers. 

But, first, many dreamers will successfully navigate the home-buying process, a process widely known for including many elements. One such element is successful navigation of home-ownership related fees. To these points, homebuyers intimately learn the significance of fees. A key cost category for many homeowners is closing costs. In the real estate context, the phrase closing costs tends to describe a range of professional fees in connection with finalizing the home sale. 

For context, closing fees are usually levied in connection with the sale of a specific home, as Rocket Mortgage detailed. The financial concepts publication noted the practical point that the process of obtaining (and sustaining) a mortgage is not gratuitous. Because the home-buying process is part of the free market but is not itself without attendant costs, the majority of homebuyers will generally have experience with signing loan related documents that facilitate the purchase of their homes. 

Signing these loan related documents is a critical part of experiencing the transfer of the physical home to the buyer. In many circumstances, the transfer of possession to homeowners is the moment when homeowners take the classic "Sold!" photo in their front yard. Because the home purchase process generally includes a wealth of professional parties and not just the realtor, homebuyer, and bank, additional costs tend to accrue throughout the purchase process.

At least a half-dozen fees, which fall under the umbrella of closing costs, should be expected. Common closing costs include land survey fees, home appraisal fees, credit check fees, loan origination fees, application fees, and home inspection fees, as Investopedia explained. Moreover, closing costs typically range between 3 to 6 % of the home purchase price. The publication explained this formula by way of example, specifying that for a $200,000 house the buyer should expect to pay $6,000 to $12,000 in closing costs. Admittedly, these fees will vary based in part on the state in which the buyer purchases the home, the type of loan the buyer receives, and the mortgage lender itself.

As Bank of America reported, closing costs can include title insurance, attorneys' fees, appraisals, taxes and more. Other examples of closing costs include homeowners' insurance. As the lender reported, it is common for six months worth of advance taxes to be paid (by homebuyers) at the closing. Of course, it also merits mention that taxes can and do vary based on regional standards.

Overall, the average homebuyer in the United States can expect to pay about $5,749 in closing costs. As Investopedia detailed, a ClosingCorp real estate survey determined that the northeastern part of the United States tended to trend toward higher closing costs. A pricey geographical example is the District of Columbia, where the expected costs total a whopping $25,800. 

Additionally, in Delaware, the expected costs total $13,273. In New York, the expected costs total $12,847. In Maryland, the expected costs total $11,876. In Pennsylvania, the expected costs total $10,076. States with the lowest projected closing costs include Indiana, Montana, South Dakota, Iowa, and the southern state of Kentucky. In Indiana, the expected costs total $1,909. In Montana, the expected costs total $2,063. In South Dakota, the expected costs total $2,159. In Iowa, the expected costs total $2,194. In Kentucky, the expected costs total $2,276. Clearly, these costs run the gamut.

Closing costs, like many different kids of costs, may be negotiated. To this point, a variety of documented negotiation strategies exist for homebuyers. At the outset, shopping around before making a home purchase often proves helpful. When a savvy homebuyer exercises her market freedom to compare fees between lenders, she brings that knowledge back to the deal and can articulate a basis for a better deal. Further, as Rocket Mortgage shared, she might choose to find her own title company, inspectors for pests, and homeowners insurance agent — in lieu of relying on suggested individuals and entities. 

As an additional point, the buyer also has the right to speak up if she reasonably suspects that her lender is tacking on non-essential costs, a questionable practice called assessing junk fees. In that instance, the buyer can ask her lender to decrease or remove any fees which evince duplication.