Here are the basics about what buyers will pay for in closing costs.

What do buyers have to know about closing costs? In addition to the down payment, buyers need to factor in closing costs of 1.25% and 2.5% to pay for prepaid items, lender fees, escrow fees, and title fees. 

Here’s an example of prepaid items: If you’re closing on your purchase in July, the seller has likely already prepaid their taxes until November, so you need to pay them back for that. Another prepaid item is for if you set up a new escrow impound account. With that, you’ll be paying one-twelfth of your taxes and insurance every month. However, to set up that account, the mortgage company usually needs six months’ worth upfront, which increases your closing costs. Mortgage interest starts the day you close and goes until the end of the month, so you’ll have to pre-pay that as well. 

“Due to all these different factors, your closing costs can vary.”

You’ll have to pay basic lender fees if you’re getting a loan. As of the recording of this video, interest rates are around 3%, but if you want a 2.75% rate, for example, you’ll need to buy down the rate. You can speak to a lender about that, but it’s essentially pre-paid interest to help you get a lower rate and payments in the future.

When it comes to the escrow process, some states use attorneys. In California, we use an escrow company as a third-party intermediary. You’ll pay the escrow company to manage the transaction between the buyer and seller, and usually, the buyer pays their half, and the seller pays their half. 

Title fees protect the lender in case there’s a lien filed on the property while you own it, and you need lender’s title insurance if you’re getting a loan. There’s also owner’s title insurance, which protects you as the owner, but typically the seller pays for that. 

Due to all these different factors, your closing costs can vary. We can give you a baseline of what all this generally looks like so you can plan ahead. You’ll want to create a savings plan ahead of time for any house you plan to buy to pay for closing costs. 

You can work with a lender to help you with all this, but we can help you too. We get questions about closing costs all the time, so if you have questions about them or any other real estate matter, call or email us. We would love to be your real estate resource.