Closing costs are the fees paid to third parties when the title to a property is transferred or conveyed to the buyer. They can be incurred by either the seller or the buyer. However, the latter will typically shoulder a bigger share of the load which is around 3 to 4 percent of the property price.
Examples of Closing Costs
Closing costs can vary greatly depending on: (1) the type of loan you use, (2) the home you buy, and (3) the area or neighborhood. It’s not likely that you will need to pay for all of the fees listed below though.
- Appraisal: This is charged by a licensed professional appraiser who confirms that the sale price of the property (upon which the underwriting of the loan is based) is of a fair market value.
- Survey: This goes to a surveyor who checks the land or lot, along with all of the structures on it, to verify things like property lines, shared fences, dimensions, and encroachments. These are usually required by commercial or industrial lenders.
- Discount Point: This is a form of prepaid interest in which a lump sum is paid to lower your monthly dues by about 0.125 percent. Typically, one point is equivalent to one percent of your loan principal.
Can Closing Costs Be Avoided?
Getting a no-closing-cost mortgage can eliminate upfront fees on your loan but can result in higher interest rates or greater mortgage owed. Thus, while it can be beneficial in lowering initial capital outlay, it has long-term financial ramifications.
Another option can be to negotiate with the seller over who will pay the fees. In some instances, the seller will agree to assume the charges.