If you’re buying your first home — or it’s been awhile since your last real estate transaction — you might need a refresher on what closings costs are and how they work. Saving for a down payment is often discussed when purchasing a home, while closing costs can get overlooked; but they are an equally important part of any real estate transaction. Keep reading to learn what closing costs are and how they work.

What are closing costs?

The closing point of the transaction is when the property title is transferred from the seller to the buyer. Closing costs are the fees associated with the end of a real estate transaction. They will vary based on the state in which you live and the property you purchase; they generally make up 3% to 6% of the home’s total purchase price. Closing costs may include, but are by no means limited to: a loan origination fee, escrow deposit, attorney’s fees, title insurance, and inspection & appraisal fees, to name just a few.

Who pays them?

Typically, the home buyer is responsible for paying the closing costs. However, in some cases you may be able to get the seller to contribute up to 6% of the sale price as a closing cost credit. This is a tax-deductible expense for the seller, so it’s definitely worth proposing it during negotiations as one of the terms of the deal.

What if I can’t afford the closing costs?

Many mortgage lenders will allow you to roll your closing costs into your mortgage loan. The drawback here is that you will end up paying interest on them, so it will cost you more in the long run.

Does anyone get a break on closing costs?

There may be discounts or other closing cost benefits for active duty military personnel, military veterans and members of certain labor unions. These benefits vary from state-to-state, so you’ll want to do your research and make sure your REALTOR® and mortgage lender are up-to-speed on your special circumstances so they can help you find out what you qualify for.

Anything else I should know?

Don’t let the thought of closing costs discourage you from your goal of owning a home; they’re just one part of a much larger transaction. If you’d like to purchase a home but are not sure you’re ready financially, Our Pre-Purchase Housing Counseling can help you answer some important questions and outline the necessary steps to help you reach your goal of home ownership.