When Buying a Home, What Are “Closing Costs” and when do i pay them?

We've all heard that you need a down payment to buy a house, but how many people are familiar with all of the other costs associated with closing on a home?

In the event you're in the latter group, let's dive into it so you can make sure to have your ducks in a row when time comes for you to buy your dream home.

Before you close, you'll pay for a few things to do your due diligence on the quality and price of the home. Depending on the house, you'll probably pay to have a general home inspection, sewer scope, radon test, oil tank search, and appraisal. The cost for all of those will likely range from $1550-$2000.

Then, once you get to the closing table, there are a few more costs on TOP of your down payment amount. Those are likely going to look something like this:

Prorated property taxes: You'll either pay or get a credit for the pro-rated amount of property taxes owed depending on what day of the year you close. This could be for 1 day or 364 days. Just for sake of illustration, Let's say the taxes on a $500,000 house are $5,000 and you owe the Seller for 6 months that they prepaid property taxes. That would be $2,500.

Homeowners insurance premium: You'll pay your full year of homeowners insurance up front. A typical policy should cost somewhere around $1,500.

Prorated homeowners insurance: Your homeowners insurance company is going to want to collect “reserves” in case next years policy price goes up. While each insurance company varies on what their standard collection is, it's typically 3-6 months. So let's say the average policy is $1200, that would be $300-$600.

Property tax reserves: Same goes for property taxes. They want to make sure you're able to pay in the event this amount increases. This will typically be between 1-6 months of reserves. So with the example of $5,000 in property taxes annually, that would be $415-$2,500.

From there, if you're getting a loan, you'll have fees that your lender charges to fund the loan. Fees such as, obtaining a credit report, floodplain certification, tax certification, underwriting costs, and some other ancillary items. These are typically between $500-$1,500.

Lastly, you have the costs associated with the title company that does the work to record the deed and transfer ownership. Those are likely going to be around $2,000.

So, all in all, with the price of an average Portland home, you can expect to pay between $10,000-$15,000 in “closing costs” to buy your new home.

I know, buying a house sounds expensive. But let's get to the good news. It's possible for the Seller to pay these fees for you. In fact, we negotiate it frequently in our offers. If you'd like to learn how we can save you these up front dollars, let us know! We're always happy to share our secrets.