What Are Home Buying Closing Costs?

© 2009, Brandon Cornett. All rights reserved.

Reader Question: Can you tell me what happens in a home buying closing process, and how much money I need to bring?

I can tell you the first part but not the last. Your escrow agent and/or mortgage lender will have to tell you how much money to bring to your closing. But by the time we finish discussing this topic, you’ll know how it all works.

Closing is the final stage of the home buying process. It is also referred to as settlement. Whether you “close” or “settle” on a home, the process is the same. This is when you and the seller sign all of the finalized paperwork, when all the commissions and fees will be paid, and when you get the keys to your new place.

The best advice I can give you is to stay in close touch with your real estate agent and your escrow officer between contract and closing. In other words, starting when your offer is accepted and the house goes under contract, you should keep in touch with the escrow person. He or she will make sure everything is on track for the home buying closing process.

Your escrow officer will also issue you a settlement statement that outlines the exact amount you need to bring to pay closing costs. This is commonly referred to as the “HUD-1 statement,” and you can see a sample of one right here (Acrobat PDF file from HUD.gov website). You should get this form a day or two before the closing process. According to the Real Estate Settlement Procedures Act (RESPA), you must receive this document at least one day before settlement. So a few days before, you might want to ask your escrow officer when to expect it.

Among other things, this document will tell you exactly how much money you need to bring to cover your closing costs. Most people get a cashier’s check for this amount, because a personal check can delay the process (pending verification).

Average closing costs vary from state to state, and with the size of the loan. According to a 2007 survey by Bankrate, the national average on a $200,000 mortgage loan is $2,736 in closing costs. This includes such things as the mortgage origination fee, property appraisal fee, the cost of pulling your credit, etc. Basically, anytime somebody touches a piece of paper on your behalf, you get charged for it.

I hope this helps you understand the home buying closing process, and the various costs associated with it. If you have any other questions about this subject, feel free to send them to us.

Related: Steps Involved in Buying a Home