Closing Costs: What to Know Before You Buy Your Home

July 17, 2024

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Buying a home is a big investment. Not only do you have to save enough for your down payment, but you also need to consider the closing costs you pay on closing day when you officially get the keys to your new home.

Closing costs aren’t fixed for everyone. Every transaction is different in terms of the services and requirements needed to close a contract.

There may also be room to negotiate who pays for the closing costs, which is why hiring a professional real estate agent or mortgage broker may help you get a better deal.

Let’s start with the basics.

What are closing costs?

Whether you are purchasing the property in cash or through a mortgage, you will still incur a one-time closing cost. These costs cover the services, taxes, fees, and insurance used to close on your home. Some of these costs may include:

Appraisal fees
Home inspection fees
Home title searches
Processing and filing fees
Attorney fees
Escrow funds
Real estate transfer taxes charged by the county and / or city
Real estate agent commission

If you are taking out a mortgage loan, closing costs will also depend on the type of loan and options you sign up for. There are certain loans that may lower your closing costs, so it’s best to shop around.

Good to know: Some mortgage loans give you the option to include closing costs as part of the loan, known as a no-closing-cost mortgage. This adds to your monthly mortgage payment, and it’s important to note that it also accrues interest.

How much are closing costs?

The final closing costs is dependent on your local county, city, state, as well as the type of mortgage you take out, along with a kaleidoscope of factors that goes into making your dream home a reality.

These costs typically run between 3% to 6% of your home purchase price or mortgage. If you are paying in cash, the closing cost may fall on the lower end of that range.

Good to know: Your mortgage provider is required to give you a loan estimate within three business days after you apply for a mortgage loan. This estimate will detail the fees related to your loan, and it is a good opportunity to bring up questions you may have regarding any fees you’re surprised about.

Real estate broker commission

In early 2024, a group of home sellers reached a settlement with the National Association of Realtors (NAR) on an antitrust class action lawsuit that accused real estate brokers of inflating commissions. As of this writing, the settlement is pending its final court approval hearing.

The agreement calls for the NAR to change its policy and rules to prohibit its members from offering to compensate the homebuyer’s agent on multiple listing services (MLS). This typically involves splitting the commission between the seller’s and the buyer’s agents and paid for by the home seller, a practice that sellers claimed to have led to reduced price competition, inflated commissions, and home prices.

NAR will also require buyer’s agents to enter written agreements with all their clients and clearly state their fees and services upfront prior to touring a home. These NAR rule changes are expected to go into effect August 17, 2024.

It's hard to know what impact these rule changes may have on home prices, but it does mean that homebuyers will need to negotiate any fee with the broker directly, if you do decide to use their services.

This could be a great opportunity to ask for more tailored services that are suited to your needs and to negotiate the commission towards the value you think your broker can add to your home buying experience.

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Who pays closing costs: buyer vs. seller

Buying a home is a big purchase where you not only part with your down payment money but additional money on top of that to close on a home.

The good news: You may be able to negotiate and have the seller contribute towards your closing costs, among other concessions – especially if the seller is eager to close the deal. Note, the NAR rule changes do not impact sellers’ ability to offer concessions to buyers.

Good to know: Your real estate agent or broker could help you explore your options before your home search and before you submit a purchase offer.

When closing costs are paid

Most closing costs are paid on the day you close on your home (hence the term, “closing costs”). In many states, closing day is when funds are transferred from the lender (or from you, if you’re paying all cash) to the seller. And it’s usually also the day when you receive the keys to your new home.

When you have the keys, it’s time to get ready for your move!

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this website were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.