The subject of closing expenses always come up whether you are buying or selling a house. A simple real estate transaction includes many people: buyers, sellers, real estate agents, lenders, attorneys, and inspectors are just a few of the individuals who participate in the process. Closing costs are the fees for the numerous services necessary to close the deal. But what exactly are these closing costs, and how should buyers figure them out? 

In this pots, we’ll look at what closing costs are, how to calculate them, and some useful hints for buyers and sellers who want to conclude their real estate deals quickly without hassle and stress. You’ll enjoy your home buying process if you use our helpful instructions, giving you an absolute confidence and clarity about every single line of your closing contract. 

What are Typical Closing Costs? 

Closing costs are the fees associated with finding a home, securing a mortgage, placing an offer, checking the title, insurance the property, and closing the real estate transaction. Buying a home isn’t as simple as choosing the perfect property and grabbing the keys, there are multiple steps along the way that might have charges associated with them. Closing costs will vary widely based on the property type, perceived value, and manner of closing escrow. Let’s explore some of the most typical closing costs: 

• Application Fee: Mortgage application fees might be charged by the lender to process the application. Just like any profession, loan processors need to be compensated for their time, which some lenders offset by charging their customers an application fee. The amount you pay can range from $0 to $500, and it’s almost always a non-refundable charge. Application fees tend to be higher if you’re working through a mortgage broker who serves as an intermediary.  

• Credit Report Fee: Some lenders charge a small fee to pull a credit report from the three credit bureaus. Expect to pay something around $15-$50b for each person who has applied for the loan. Make sure to ask if your lender includes this charge. 
• Underwriting Fees: Underwriting fees are charged by mortgage providers for researching the buyer’s financial, employment, income, and credit score information during the loan approval process. In short, underwriting fee is a closing cost paid by the borrower directly to the lender to cover their overhead and administrative costs and to make money from your mortgage. 
• Lawyer/Attorney Fees: Some real estate attorneys will charge a few to review and prepare contracts and agreements about the home. While not every state requires the use of a real estate attorney, you should research this before hiring an attorney. 
• Property Appraisal Fee: As the buyer, you want to make sure the property is in great condition, causing you to complete a property appraisal with a reliable home inspector.  
• Closing Fee: Escrow fees are another anticipated closing cost that will be paid to the party that organized the closing, whether that party is an attorney, escrow company, or title company. 
• Escrow Deposit: The mortgage provider might demand an escrow deposit, which is two months of property tax and mortgage insurance payments at the close of escrow. 
• Potential Courier Fee: When completing important paperwork surrounding the real estate purchase, it’s smart to ensure the documents arrive at their destination safely. If documents are completed digitally, this fee will not apply.  
• Title Insurance: When you purchase a home, you want to make sure it’s legally considered your property. Prevent someone from challenging your ownership by purchasing title insurance for the property. 
• HOA Transfer Fees: Those purchasing property within a planned development need to join the community homeowner association. The buyer or seller will need to pay the transfer fee for switching ownership, as well as any insurance and due costs for the upcoming year. HOA fees can dramatically adjust a home’s value as it affects the buyer’s monthly payments, so make sure to factor these in early. 
• Prorated Property Tax: When you close the deal, any property taxes that are due from the closing date to the end of the tax year will need to be paid. Make sure to pro-rate these fees accordingly. 

Does the Buyer or Seller Pay Closing Costs? 

Some closing costs that sellers might be expected include:  

• Home Warranty Premiums: Sellers will occasionally offer a home warranty for the first year to peak buyer interest.  
• Real Estate Commissions: Perhaps the largest fee a seller will need to cover is the real estate commissions. Broker commissions will vary but are typically 5-6% of the home’s gross purchase price. While these fees might be negotiable, they shouldn’t be neglected when calculating closing costs. Seller is typically expected to pay Agent commissions. 
• Title Transfer/Insurance Fees: Sellers may need to pay regionally specific taxes or fees for the transfer of the property’s title or title insurance in the case of issues coming up.  
• Escrow Fees: Typically buyers and sellers will split escrow fees 50/50 – “Each to pay their own”. 

General Rule of Thumb: as a quick “back of the napkin” estimation, we use 1% of the sales price as an estimate for Seller’s closing costs. I.E. on an $400,000 sales price, sellers can estimate roughly $4,000 

In North Carolina closing costs are 1.03% to be exact.  

How to Calculate Closing Costs: A Helpful Guide 

Understanding how to calculate closing costs is highly dependent on understanding where these closing costs originate. The closing costs we’ve reviewed are only a fraction of the potential fees that can accrue during the transaction. Employing the help of a real estate agent or attorney can vastly improve your ability to anticipate and calculate these costs. These professionals will have a strong working knowledge of the entire process, which can be very helpful down the line. 

While each property will vary, the average cost of closing costs is 2-5% of the home’s price. Here are some helpful tips for calculating closing costs so that you’re not blindsided at the end of your real estate transaction.  

Gather an Estimate for the Cost 

When getting approved for a mortgage, the lender will usually be able to provide an estimate of the anticipated closing costs based on the home’s value, estimated down payment, and mortgage interest rate. Since many closing costs are based on a percentage of the home’s value, an accurate estimate is crucial for securing those funds down the line.  

Gather a Full Breakdown of All Costs 

Now that you have an idea of the home’s price point, it’s much easier to break down the potential closing costs. These closing costs will include lender services, appraisal fees, and clerical items such as insurance, property taxes, and titles. We also explored numerous other charges that might be included based on the buyer’s experience. Gather a comprehensive breakdown of these services to calculate the anticipated fees.  

Research Potential Deductions 

While some closing costs are inevitable, such as the mortgage application fees or title insurance, some services can be worked around or potentially deducted. For example, some lenders might include closing costs within the mortgage itself, that way buyers can pay these fees off over time rather than making a lump sum payment. 

Refine and Prepare Based on Findings 

Once you have a final total for closing costs, make sure that all information you’ve gathered is based on local state requirements and price points. Add up each of the closing costs to determine what will be due at escrow. Another general rule is to always estimate high to avoid unnecessary curveballs. It’s always better to be prepared to pay something and later save cash than not save enough to cover these costs. With that said, here in North Carolina we use a 1% of selling price as a quick easy estimate. I.e. If a house sells for $400,000 it is reasonable to budget 1% of that ($4,000) for closing costs alone.  

Get an easy, no-nonsense cash offer from NC TLC Estate! Sell to us and we’ll pay your closing costs! 

Call us TODAY 919-444-8778 to get your FREE, NO-OBLIGATION CASH OFFER. And we will pay your closing costs!