For a long time, 3% of the loan amount in closing costs was the standard most clients could expect. But in the current market, we are finding that 4-5% is a safer estimate (although they could be higher or lower). There are many factors that go into closing costs – they aren’t due to any one party or item in the transaction.  

Why Closing Costs Are Higher 

First, the amount of the settlement costs rely greatly on the loan amount. Some costs are fixed, but most adjust to the loan amount. 

But fixed costs have gone up, too. Inflation is predicted to continue tapering this year, but over the last year, it’s raised prices on everything from groceries to gas to homebuying’s services and fees. Overall, appraisal fees, attorney fees, inspections, realtor administration fees, loan origination fees, title searches, and many other items have increased, not to mention homeowners’ insurance policies. 

Then there’s the home’s location. If the home is in a higher-priced or resort area, that can add hundreds of dollars to the normal charges. If the property is in a flood zone, requires a well or septic inspection, a foundation certification or a condo questionnaire, this will add to the overall cost.  

Discount Points 

Another big driver is discount points. With the rise in interest rates from 3% to 7% or higher, combined with the increase in home prices, more and more buyers are electing to pay a partial or full point to buy down their interest rate in exchange for a lower monthly payment. 

Closing Cost Worksheets 

Once your client has identified a potential property, have them reach out to me for a closing cost worksheet, so all parties know the total cash required for the transaction. I’m happy to go over the estimates and possible ways to cover them. 

Reach out with any questions you have about closing costs or other homebuying topics!