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Breaking Down Closing Expenses

Closing expenses, also known as settlement costs or escrow fees, can be a significant financial burden for homebuyers and sellers. While closing costs can vary depending on several factors such as location, loan type, and property value, they typically range from 2% to 5% of the purchase price.

What's in the Box? Understanding Your Closing Costs​

Closing expenses are essentially fees associated with processing a real estate transaction. These costs can be broken down into two primary categories: those incurred by the buyer and those by the seller.

Buyer's Closing Costs:​

  • Title Insurance and Escrow Fees: This covers the cost of title insurance, escrow services, and recording fees.
  • Appraisal Fee: An independent appraisal is required to determine the value of the property for lending purposes.
  • Inspections and Testing Fees: Home inspections, termite reports, and septic inspections are common expenses buyers incur.
  • Lender's Origination Fee: This fee is charged by the lender for originating a loan.
  • Credit Report Fee: The cost of obtaining a credit report from one or more of the three major credit reporting agencies.
  • Survey Fees: A survey may be required to determine property boundaries and ensure that there are no encroachments.

Seller's Closing Costs:​

  • Title Insurance and Escrow Fees: Like buyers, sellers also incur title insurance, escrow services, and recording fees.
  • Transfer Taxes: These taxes vary by state or locality but are usually paid by the seller.
  • Document Preparation Fees: The cost of preparing and recording deeds, mortgages, and other documents.
  • Notary Fees: Fees associated with notarizing documents.

It's worth noting that closing costs can be negotiated or split between buyer and seller. Homebuyers may want to factor these expenses into their budget when calculating the total cost of ownership. Sellers should also consider closing costs when determining their asking price.