After all the penny pinching, house hunting and mortgage application paperwork, closing costs can sneak up on you during the home buying process. Closing costs, the fees you pay your lender, are generally 3 to 5 percent of the loan amount and may include title insurance, appraisals, taxes and more.

It’s important to determine what your closing costs will be so you can be prepared. Use the tips below to help you navigate the landscape.

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The increase in closing costs and how that impacts buyers

According to CoreLogic, a real estate research firm, the average U.S. home price has risen by more than $50,000 since last year. Not only did home prices rise but mortgage rates as well. Since the beginning of 2022, mortgage rates have jumped by 1.8 percent.

The National Association of Realtors recently reported that the average closing cost for a single-family home rose by 13.4 percent in 2021, equating to about $6,905 including transfer taxes and $3,860 excluding transfer taxes.

The rise in home prices has a direct correlation to the rise in interest rates, leading to higher closing costs when buying a house.

Rich La Rue, designated broker at HomeSmart.

How to budget for closing costs

Knowing that closing costs are usually around 3 to 5 percent of the amount borrowed, finding how much money needs to be saved is easy. For example, if you’re taking out a mortgage loan for $500,000, you can expect to pay between $15,000 and $25,000 in closing costs.

Knowing the range and estimating how much to save is crucial when it comes to big purchases like a house. Setting a home buying budget involves more than an affordable monthly payment.

Calculating your debt-to-income ratio, having established credit and following the 28/36 rule is a great way to get started. This rule states that you should only spend 28 percent of your income on your housing expenses, and 36 percent on debt (like a home loan).

Negotiate with the seller cover closing costs

Both buyers and sellers are liable to pay for closing costs, typically though, the buyer pays for most of it.

It can be tricky to ask the seller to pay for a larger portion of the closing costs. The seller is already paying around six percent of the total sales in agent fees and commissions, most sellers don’t want to absorb any additional payments. Also, depending on the loan from the bank, the seller can be limited in how much of the closing costs they are forced to pay.

Certain fees are negotiable while some are non-negotiable. Negotiable fees include homeowners’ insurance, real estate commission and title insurance. Some fees that are non-negotiable are government fees, property taxes and courier fees.

Navigating closing costs can be difficult but if handled properly can be the easiest step of the home buying process.


Author: Rich La Rue is the Designated Broker for HomeSmart Phoenix, the flagship brokerage operation in the HomeSmart system. For more information, visit