Understanding Closing Costs

By: Chrystal Caruthers

Unless you’re Kylie Jenner, it takes a long time to save for a down payment on a house, let alone the closing costs. The rest of us sacrifice our gourmet coffee for the lukewarm in-office drip in the hope that setting aside a few dollars a day will magically compound into enough to buy our piece of the American Dream. And just when we think we have the necessary funds to make even the minimum 3% down payment, we’re slapped with another round of expenses: closing costs. Like most people (Miss Jenner excluded), you’re probably wondering how to avoid closing costs. There’s no way for you to outright dodge these fees, but there are ways you can pay vastly less.

Closing costs typically amount to 3% to 6% of the purchase price. Why the broad range? Taxes. Buying a house means paying taxes and sometimes transfer fees upfront, at the closing. While there are settlement costs that go to your attorney, title insurance company, and lender, the biggest beneficiary is the government—city, county, and state.

Need some salt in that wound? Closing costs increased 6% last year and now average $2,539 on a $200,000 loan, according to Bankrate.com. Likewise, Bankrate.com says origination fees (i.e., lender commissions) also increased 9% to $1,877, while appraisal fees rose 1% to $662. (Bankrate.com did not factor real estate taxes and transfer fees into its analysis, which accounts for the discrepancy between its estimate and the more general 3% to 6% estimate.)

For more on this, please visit http://www.realtor.com/advice/buy/reduce-closing-costs/