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What are Closing Costs?

What Are Closing Costs? And How Much Are Closing Costs?

The process of completing the sale of a home can be a complex one. There are many circumstances in which a prospective buyer or seller may not fully understand all of the terms and language thrown at them during this process. It is vital to clear up any potential confusion about real estate terms as soon as possible so that it is abundantly clear what is happening at each step.

Today, Thank You Heros invites you to take a closer look at closing costs and how they impact real estate transactions.

What are Closing Costs?

Buyers must come up with a significant amount of money to put towards a house if and when they are ready to consider purchasing. Most people know they will need a down payment of some kind for the home they would like to purchase, but not everyone realizes that they also need to consider the closing costs.

Closing costs include any payments made by you to your mortgage company before closing on your home loan. The lender will charge you these closing fees in return for making your loan. These can vary widely depending on the type of loan taken out and where you reside. You should know what these closing costs entail so you don’t get an unwelcome surprise later.

They’re unavoidable expenses that you can’t avoid. Suppose you intend to borrow a mortgage to finance your home (as almost all homebuyers do). In that case, you will have closing costs associated with that loan.

How Much are Closing Costs?

Closing costs typically account for between three and six percent of the total loan amount that you’ve borrowed. Let’s take a look at this from a mathematical perspective. Suppose you take out a loan for $300,000. You might end up paying anywhere from $7,000-$13,000 for your closing costs. But that’s just what you’d expect from a typical mortgage.

The Thank You Heroes program in San Diego, CA, offers a break for our military veterans. It is possible to receive up to a 30% rebate on commissions and as much as 100% of your closing costs covered by this program. That is a massive benefit for those searching for ways to cover the expense of purchasing a home.

Who Pays Closing Costs?

Both parties (the buyer and the seller) are responsible for paying closing costs. However, the buyer is generally on the hook for much more of the closing costs than the seller is. That being said, the buyer can negotiate a bargain with the seller that has the seller take on more of the closing costs. This negotiation is known as “seller concessions.” It is helpful to work into any sales contract if you have difficulty coming up with enough cash to cover your closing cost obligations.

It is helpful to note that sellers can only contribute up to a certain percentage of the mortgage toward your closing costs. Thus, they can only negotiate a certain amount of these closing costs with you. The amount they can contribute toward your closing costs is broken down based on the size of your down payment — the larger the down payment, the more the seller can pay toward your closing costs.

How Much are Closing Costs for a Buyer? 

Many helpful online calculators provide a rough estimate of your closing costs based on the down payment you put down and the size of your mortgage. With a traditional mortgage, your closing costs typically come in around 3-6% of the total value of the loan. Still, that total number is greatly influenced by the negotiation process and the size of your down payment. The best way to get an idea of what you might pay is to enter varying amounts into the calculator and see what happens.

How to Reduce Closing Costs

Everyone wants to pay as little in closing costs as they possibly can. It is an extra chunk of money you might not have available now. Even if you had the available money, you probably wouldn’t want to spend it on closing costs when you don’t have to.

To save money on closing costs, contact Thank You Heroes in California to see if you qualify for one of their rebate programs. You may be able to get back up to 30% of what your realtor charges you in commission fees.

It is worthwhile to check out what Thank You Heros is all about.

If you’re ready to buy a home, don’t hesitate to contact Thank You Heroes to check your eligibility.

Image Credit: Onizuka Yoshiki  / Shutterstock

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