Homebuyer's Ultimate FAQ on Closing Costs

Buying a house is an exciting step in life!

One of the expenses that come with the homebuying process that is often times overlooked is the closing costs.

This important and commonly misunderstood costs is the final step before you can proudly call the house you bought your home.

Closing costs may feel like just another financial obstacle towards homeownership. But, getting a clear idea of what they include, who’s supposed to pay for them, and how you may be able to reduce them can turn this whole process from stressful to stress-free!

Whether you're a first-time or a repeat homebuyer, this guide has everything you need to know about closing costs.

What are Closing Costs?

Let’s start with the basic.

Closing costs are the fees and expenses a homebuyer pays to finally complete the purchase of a house. They often include title insurance, appraisals, taxes and other fees (more on this below) that are typically paid at the end of the homebuying process when the homebuyer finally "closes" on the house.

Sounds simple, right?

What Fees and Expenses are Included in Closing Costs?

Here’s a general list of the fees and expenses included in closing costs.

This is a general list because, keep in mind, closing costs depend on the house, the state, and the homebuyer’s loan.

For example, in New York, they require an attorney to oversee the closing, which adds to the cost. But in California, they don’t require an attorney. Another example is Flood Certification Fee. States that are prone to flood like Florida and Texas require this certification.

The type of loan a homebuyer applies for can also makes a big difference. For example, if a homebuyer has a Federal Housing Administration (FHA) loan, this typically means they will have a higher closing cost because it requires both upfront and annual mortgage insurance premiums. If a homebuyer has a Veteran's Affairs (VA) loan, they'll have lower closing costs since it doesn’t require mortgage insurance, but they do have to pay a VA funding fee.

Who Pays for the Closing Costs: Buyer or Seller?

In a real estate transaction, the question of who pays for closing costs is usually negotiated or worked out between the homebuyer and the seller.

Some sellers may agree to cover a portion of the homebuyer’s closing costs. This arrangement is known as seller concessions. How this works out depends on the type of market you’re in.

If you’re in a buyer’s market (there are more houses for sale than buyers) sellers may be more willing to cover some of the closing costs to close the deal.

But if you’re in a seller’s market (there are more buyers than houses for sale) buyers may pay for most of the closing costs to make their offer stand out.

What’s the Average Closing Cost?

Closing cost vary by your state, county, loan type, the home’s purchase price, and negotiations between you andthe seller.

In general, if you ask homeowners about how much they paid for their closing costs, they will tell you they paid around 1%-3% of the home value. And most lenders will give you a figure around 4%-5% only because they want you to be financially prepared and, don’tworry, mostlikely itdoesn’treach up to this figure.

If you want an accurate estimate, we suggest you consult professionals involved in the homebuying process like your:

1. Lender – They can provide a Loan Estimate (LE) highlighting the expected costs based on your loan type and home value.
2. Real Estate Agent – They can provide you an estimate figure based on their past transactions, experiences, and expertise in the area.
3. Title Company – They can give a detailed breakdown of specific fees.
4. Mortgage broker – They can compare costs for you and give you a general idea.

To provide you with a better sense of what to expect, here’s a look at what homebuyers in different states have paid for their closing costs:

Can You Reduce Closing Costs?

Closing costs can be expensive, so many homebuyers as this question.

One way homebuyers lower their closing costs is when they negotiate with the home seller. Some homebuyers ask their seller to cover some of the expenses in their offer.

Another way to reduce closing costs is by buying the house in cash. When someone buys a house in cash, they reduce the closing costs because most of these costs itare connected to a mortgage. Since there’s no loan involved, a homebuyerdoesn’t have to pay for other fees like credit report fees and lender’s title insurance.

You can also reduce closing costs is when you buy your home here on WithJoy.AI. Most of our users have applied the commission rebate (we rebate 70% of the buyer’s agent commission directly back to our customers) to reduce their closing costs and lower their lender's interest rate.

If you really want no closing costs at all, there are programs like the NACA mortgage that offers no closing costs and no down payment. Check if you’re qualified for this program.

To Close Things Out on Closing Costs..

Knowing more about closing costs is important in your homebuying journey.

These expenses and fees can be a bit overwhelming but educating yourself about them can make this process smoother for you.

By being financially prepared, you can easily work around closing costs and focus on what truly matters—homeownership.

Best of luck in your homebuying journey! 🏡✨