Learn how much you need to save up for closing costs on your house. This home buyer’s guide uncovers what's included in fees and how you can trim them.
If you’re planning to buy a home, you’re probably already saving money for the down payment—the beginning of the whole home buying adventure. But have you also thought about saving for the end of the process, the closing costs?
If you answered “No,” you’re not alone. More than half of all home buyers are surprised by closing fees—and not in a “Yay, let’s celebrate!” kind of way. Buyers are often caught off guard about these costs and how expensive they can be.
However, a little advance planning can help a lot. Knowing exactly what fees are required at closing can help you prepare for the big moment. And knowing when, where and how to save on closing costs could actually help lower the total amount you’ll pay.
Closing costs are all the fees you’ll pay at your closing meeting, which is the last step in the home buying process. Once you close your loan, those long-awaited house keys will officially be yours.
Closing costs might seem like a confusing jumble of dollar signs at first. The good news is there are ways to save money on them. Prepare to dig in and do some research, but a little bit of extra work could save you thousands of dollars.
Buyers can expect to pay between 2 and 5%1 of a home’s purchase price in closing costs. On a $200,000 house, that amounts to $4,000-$10,000. Gulp. Yes, you read that right. You’ll pay closing costs on top of your 5-10% down payment. So on a $200,000 house, you could hand over a grand total of $14,000 to $30,000 (down payment and closing costs) before you get your house keys.
But don’t let the numbers scare you off. There are definitely ways to cut closing costs. Whatever your final savings total ends up being, you’ll need to keep this money easily accessible as you get ready for closing. Consider depositing closing funds in an online savings account or money market account. You can easily transfer the money to your checking account right before closing. You’ll then wire the funds or write a check to your escrow company.
Closing fees are pretty standard among all lenders. Some fees aren’t really negotiable, but others definitely are. Start any cost-savings quest by reviewing your estimate of closing costs, called a Good Faith Estimate (GFE), at the beginning of your mortgage-application process. All lenders are required to give you a GFE, so you can easily compare closing costs from different lenders to figure out the best deal for you.
You’ll get the final closing cost total (your Closing Disclosure) at least 3 business days before closing. Even though you won’t have a ton of time before you close, go over your disclosure with a fine-tooth comb. If you have questions or see mistakes, get in touch with your lender right away, so you don’t overpay or delay your closing date.
First of all, what you, the buyer, pay at closing depends on your mortgage type and your lender’s requirements. However, the following fees are fairly typical. Prices for each item can vary, depending on where you live.
Lender fees These are charges for processing your loan:
Saving on lender fees
Saving on mortgage fees
Your main option is to consider paying for discount points: Points are simply loan interest charges you can pay upfront instead of over the life of your mortgage. Each point equals 1% of your loan amount. Paying for this advance interest will actually increase your closing fees. However, you’ll pay less on your ongoing, monthly mortgage payment for the life of your loan. So discount points may be worth considering.
Fees to outside companies and agencies
Saving on outside agency fees Comparison shopping can help you save. Get multiple bids from as many of the different professionals as you can—inspectors, surveyors, attorneys and title insurance agents. Your top picks may be willing to negotiate their charges if you can show that their competitors’ prices are lower.
Property ownership fees
Saving on ownership fees
Once you’ve negotiated the best deal possible on your closing costs, it’s time to pony up your money. The nitty gritty is that buyers pay their closing costs by check or wire transfer. Your mortgage loan officer or the escrow company handling your closing will advise you.
In some cases, you may also be able to add your closing costs to your mortgage loan amount.2 In that case, you may not owe any money at the closing table. However, remember that rolling closing costs into your loan means a bigger mortgage, a higher monthly mortgage payment and more interest over the life of your loan. That’s gonna leave you less money to save for other financial priorities.
It’s no surprise that earmarking money for your closing costs probably isn’t on anyone’s “Top 10 Fun Parts of Home Buying” list. However, with a little research and some artful bargaining, your closing fees could end up being much less expensive than you thought. That means more money left in your bank account for that new family room sectional couch and TV.
This site is for educational purposes. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.
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