Closing costs  are fees associated with finalizing your mortgage and buying your home. Think of it as the “last step” of the process, and they can cover a variety of expenses. According to  Fannie Mae and Freddie Mac  guidelines, closing costs typically include: 

1. Loan-Related Fees 

  • Origination Fees: These are fees charged by the lender to process the loan. 
  • Appraisal Fees: The cost of having the home appraised to confirm its value. 
  • Credit Report Fees: A fee to check your credit score. 
  • Underwriting Fees: Charged by the lender for reviewing your loan application. 
  • Mortgage Insurance: If you’re putting down less than 20%, you might have to pay for mortgage insurance, which protects the lender in case you default. 

2. Title & Escrow Fees 

  • Title Search/Title Insurance: Protects against any issues with the home’s title (like someone else claiming ownership). 
  • Escrow Fees: If an escrow company is handling your transaction, they’ll charge a fee to manage the funds and paperwork. 

3. Taxes & Insurance 

  • Property Taxes: You may need to prepay property taxes for a few months. 
  • Homeowners Insurance: Usually, you’ll need to set up a policy before closing to protect the home. 
  • Flood Insurance: If the property is in a flood zone, you may need to pay for flood insurance upfront. 

🧮 How Much Are Closing Costs? 

The total amount for closing costs usually falls between  2%–5%  of the home’s purchase price. For example, on a  $300,000 home, you might pay anywhere from  $6,000 to $15,000  in closing costs. These costs can vary based on the type of loan you’re getting, where you live, and other factors like the home’s location and price. 

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💡 Can Seller Credits Help Pay for Closing Costs? 

Yes!  In many cases, you can negotiate with the seller to cover some or all of your closing costs through  seller credits. This is where the seller agrees to give you a credit at closing, which you can apply toward your closing costs. 

Under Fannie Mae and Freddie Mac guidelines, seller contributions are allowed, but there are limits: 

  • For Primary Residences: 
    • If your down payment is less than 10%, the seller can contribute up to  3%  of the purchase price toward closing costs. 
    • If your down payment is between  10%–25%, the seller can contribute up to 6% of the purchase price. 
    • If your down payment is more than 25%, the seller can contribute up to 9%. 
    • For Investment Properties: 
      Seller credits are usually limited to 2% of the purchase price. 

📝 Important Things to Know About Seller Credits: 

  • Seller credits cannot be used  for your down payment. 
  • Seller credits are typically used for  closing costs, which include loan fees, title and escrow fees, insurance, taxes, and prepayments. 
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🔢 Quick Example: What Could Seller Credits Look Like? 

Here’s a quick look at how seller credits might work: 

Home Price Seller Credit (3%) Seller Credit (6%Seller Credit (9%) 
$300,000 $9,000 $18,000 $27,000 
$400,000 $12,000 $24,000 $36,000 
$500,000 $15,000 $30,000 $45,000 

As you can see, if you’re able to get the seller to contribute, that can make a huge difference in reducing your out-of-pocket expenses when you close on your home! 

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Final Thoughts 

Closing costs can be a big surprise if you’re not prepared for them, but now you know what they are and how they work. If you’re worried about coming up with the funds for closing costs, remember that  seller credits  can help. Just be sure to negotiate with your seller early on, so you know what to expect. 

Got more questions about closing costs or anything else? Feel free to reach out! I’m here to help you every step of the way. 

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