Buying a house is a confusing ordeal, filled with many processes that may seem arbitrary and time-consuming—this is especially true for first-time buyers. Among these many confusing pieces is the closing cost. Most buyers don’t quite know what to expect or how much they’ll have to pay.
This article is going to go into detail about everything related to closing costs so you can better relay this information to your clients.
What is the Closing Cost?
Investing in a home isn’t as simple as paying the asking price and calling it a day. The closing costs are the fees for services rendered before the property transfers from seller to buyer. There are several factors, which are detailed below, that will affect the total amount due. Typically, closing costs will range between 2 and 5 percent of the purchase price (there are closing cost calculators that can help you estimate for your clients).
What Fees Should Your Clients Expect?
The total closing cost will vary widely, depending on where your client lives, the property they buy and the type of loan they receive. The following is a list of possible fees, but it’s unlikely that you will see all of the fees listed here in one closing:
- Application Fee: This is the cost of your lender to process your loan application. It may be paid before or at the point of closing.
- Inspection Fee: The cost of having someone come to inspect the home by a licensed inspector. This inspection will usually identify any repairs that need to be made, which can be discussed during negotiations.
- Appraisal Fees: Paid to an appraiser to determine the actual value of the home. Usually paid for by the buyer at closing.
- Brokerage Commission: The fees given to the real estate brokers at closing, by the seller.
- Homeowner’s Insurance: This will be paid for by the buyer to insure the property from potential damage. Typically, the first year of homeowner’s insurance is bought at closing.
- Property Tax: The total amount of taxes must be calculated and prorated to the end of the year. Most lenders want any taxes due within 60 days of purchase by the loan servicer to be paid at closing.
- Transfer Fees: The cost of transferring the title of the buyer to the seller.
This isn’t a complete list of closing costs, but comprises the most common fees.
How Much is that Exactly?
As stated earlier, closing costs range between 2 and 5 percent of the purchase price of the home. If the home your client is closing on cost $150,000, they would likely pay between $3,000 and $7,500 in closing costs. Their lender will give them an estimate, which will usually include the closing costs.
Often, many of the fees associated with closing costs are negotiable, and some are convenience-based and completely unnecessary, such as mail or courier fees. As the agent, you can often play a pivotal role in reducing closing costs for your clients by instructing them to shop around and how to find the right loan for them. Keep in close contact with your clients by utilizing an IDX website through a CRM with scheduled reminders. You can send text updates reminding clients with what they need to remember to ask about when they see a lender.
Ultimately, the closing costs is only a small portion of the total cost of buying a home. However, it still translates to thousands of dollars that you can help your clients prepare for and understand.