Closing Costs: Why You Can’t Afford to be Uninformed

Closing costs: a necessary part of the real estate process, the final payments before your purchase is complete, and something, it turns out, many people know little to nothing about.

Ignorance Isn’t Bliss

closing costs photo
Photo by pedrosimoes7

According to a recent survey by ClosingCorp, roughly two thirds of millennials—those between the ages of 18 and 34—are “not at all” aware of what closing costs actually are. And it’s not just millennials who are uninformed; 34% of the 1,000 people surveyed are “not very” or “not at all” aware of closing costs.

Regardless of how much you’re spending, where you live, or what generation you consider yourself, closing costs are a significant part of the process, and something you need to be well aware of if you’re serious about buying a home.

Closing Costs 101

Typically, the total costs come to between two and five percent of the purchase price of a home, and are paid right before the title is handed over. So if you’re buying a house for $300,000, expect to pay anywhere from $6,000 to $15,000 in closing costs. That’s a pretty big chunk of change, and a good reminder why being “not at all” aware of them can be a major problem. After all, you’d better be prepared to have this money available.

While your mortgage lender is legally obligated to give you a good faith estimate (GFE) of closing costs within three days of your loan application, it’s important to know that it is just that—an estimate—and it can change up to ten percent.

The Breakdown

The specific costs vary, depending on your home, your lender, and your location, but they usually include things such as:

  • Appraisal fee
  • Credit report fee
  • Tax service fees
  • Attorney fees
  • Title insurance
  • Discount points, if applicable
  • Title search fees
  • Underwriting fee

It’s important to keep in mind that many of these fees are based on the purchase price. So while the national average for total closing costs is approximately $3,700, in Boston, where the average purchase price is higher than the national average, the average closings costs are accordingly higher.

The Inside Scoop

Just as important as knowing what closing fees are is knowing that there are certain ways around them. For instance, there are no-closing-cost mortgages, but what you need to keep in mind is that they in no way eliminate these fees;  they’re either incorporated into the mortgage, which means you’ll pay interest on the closing costs, or they’ll result in a higher interest rate.

A better option, if you’re looking to get the costs down however possible, is through negotiation. That’s right—a few of the costs are negotiable: here are some of them.

Finally, it’s not impossible to get the seller to cover your closing costs, or at least contribute to them, especially if you have a very motivated seller. If you’re in the midst of a bidding war or are in an area where competition is high, this is very unlikely, but in other cases, it’s worth trying.

The most important thing when it comes to these costs is to keep them in mind from day one. Factor all fees into the overall purchase price ahead of time, so you know exactly what you can afford—and enlist the help of an experienced mortgage broker who will guide you every step of the way.

If you’re buying or selling a home in the Boston area and are in need of a mortgage, or have any mortgage-related questions, contact me at any time for advice or help.

Phil Ganz (117 Posts)

Philip D. Ganz is a Boston Mortgage Broker and Boston Home Loan specialist. For information, expertise, consulting, or advice about home loans, refinancing mortgages, or commercial property loans, contact Phil with no obligation: 617-529-9317

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