Closing Costs: What To Expect

One of the most popular questions I get from people who are thinking about buying a home is “what are my closing costs going to be?” When I start my answer by saying “it depends…” sometimes I can hear them start to sigh.

But the truth is, closing costs are whatever you want them to be. Sound crazy? Maybe, maybe not. The truth is – when you buy a house, everyone is going to make money. The appraiser is going to make money. The title company is going to make money. The Realtor is going to make money. The inspector is going to make money. And of course, the bank is going to make money.

But the difference about the bank making money is that you actually have a choice as the borrower on how much the bank makes and whether you want to pay now or pay over the life of your loan.

Lender Closing Costs: What If Your Pay Now?

If you elect to pay your lender closing costs at closing, you can reasonably expect to pay between 1 and 2% of your loan amount in lender closing costs. These are usually split between origination fees (typically between .5% and 1%) and processing/underwriting fees (typically about $1,500)

Lender Closing Costs: What If Your Have The Bank Pay?

Having the bank pay your closing costs is simple – and they will be happy to – in exchange for a slightly higher interest rate. Many times, the lender will explain it something like this: your lender fees will be $X and your interest rate will be 5% — or — your lender fees will be $0 and your rate will be %5.5.

Which is a better deal, having the bank pay your closing costs or you paying them yourself?

It depends.

Generally speaking, the longer that you are planning to have the loan, the more sense it will make for you to pay your closing costs and have as low of an interest rate as possible. If you plan on only having the loan for a few years — it will usually make more sense for the bank to pay your closing costs in exchange for a slightly higher rate.

Lender Closing Costs: F-R-E-E

Ok, so now for the big secret. The truth is, there is one other party who may be willing to pay your closing costs… the seller! It is not uncommon for a seller to pay your lender closing costs in exchange for you buying the house. There are a number of different ways to negotiate this, so be sure to work with your Realtor to get great advice here on this one.

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