5 Hidden Closing Costs Homebuyers Often Overlook
So, you're about to buy a home, and you think you've budgeted everything—right? But have you thought about all those sneaky fees that come with closing the deal?
According to Zillow’s Consumer Housing Trends Report 2024, nearly 91% of buyers encountered at least one surprise cost during the closing process. Let's break down these fees so you can feel confident and ready on closing day!
1. The Loan Origination Fee
For 66% of buyers, this was the most unexpected expense. The loan origination fee covers the lender’s administrative costs for processing your loan, typically ranging from 0.5% to 1% of the loan amount. While it’s standard, many buyers don’t anticipate it, which can add thousands to your closing costs.
Pro tip: Ask your lender upfront about this fee, and don’t be shy about negotiating! Some lenders might waive part of it if you shop around.
2. Appraisal Costs
Appraisals ensure the property's value aligns with the loan amount, but 54% of buyers didn’t expect to pay for it out-of-pocket. Depending on where you live and the size of the home, appraisal fees typically range from $300 to $500, so it’s worth budgeting for this.
3. Title Transfer Taxes
More than half of buyers (54%) were surprised by title transfer taxes. These taxes, set by state and local governments, transfer ownership from seller to buyer and vary by location. In our market, for example, buyers can expect to pay [a flat rate/a percentage based on the home’s value]. Be sure to ask what’s typical in your area.
4. Title Insurance & Search Fees
Title insurance and title searches protect against any legal issues with the property’s ownership. But 51% of buyers didn’t anticipate these costs. Title insurance is crucial because it protects you from future disputes, but it often flies under the radar when calculating closing costs.
5. Closing Costs: Higher Than Expected for Many
Closing costs can add up quickly. From attorney fees to recording charges, they typically range from 2% to 5% of the purchase price. The survey found that 42% of buyers had higher closing costs than expected, with nearly half of first-time buyers (49%) feeling unprepared for the final total.
To avoid surprises, ask your lender for a Loan Estimate early in the process. This document will outline your expected closing costs, and three days before closing, you'll receive a final Closing Disclosure that details the exact amount. Be sure to review this thoroughly.
How to Avoid Surprise Fees
Now that we’ve covered the costs that caught buyers off guard in 2024, here’s how to keep your closing day stress-free:
Ask Questions Early: Don’t hesitate to ask your lender and real estate agent about potential fees upfront. The more you know, the better you can plan.
Shop Around: Get multiple quotes for title insurance and closing services to make sure you’re getting the best deal.
Budget for Flexibility: It’s always smart to have a little cushion in your budget for those last-minute expenses.
Buying a home is one of the biggest financial commitments you'll ever make, and the last thing anyone wants are surprise costs at the finish line. By planning ahead and asking the right questions, you can walk into closing day feeling confident and prepared. Whether this is your first home or your fifth, the key is to stay informed, plan for the unexpected, and ensure your budget has room for any last-minute fees.
Ready to take the next step? The Zoeller Team is here to guide you every step of the way!