Closing costs are unavoidable fees and expenses that are due upon the closing, also called settlement, of a real estate transaction.
The closing costs for the buyer and the seller vary, and it is important to have the right information so you can estimate and budget effectively.
The table below enumerates the typical closing costs and their corresponding average closing costs Washington D.C., along with who is responsible for each.
| Closing Cost | Who Pays? | Average Rate |
|---|---|---|
| Real estate agent commission | Seller | 5% to 6% of the property's sale price |
| Transfer taxes | Seller | Up to 1.45% of the property's price if above $400,000 |
| Recording Fee | Seller | $600 to $700 |
| Title search | Seller | |
| Home repairs | Seller | Varies |
| Seller concessions | Seller | Varies |
| Escrow Fee | Seller | Varies |
| Loan origination fees | Buyer | 1% of the mortgage loan amount |
| Appraisal fee | Buyer | $300 to $500 |
| Title insurance | Buyer | $200 to $250 |
| Credit report fee | Buyer | |
| Inspection fee | Buyer / Seller | $400 to $600 |
| Private Mortgage Insurance (PMI) | Buyer | |
| Homeowners insurance | Buyer | Varies |
| D.C. recordation tax | Buyer | Up to 1.45% of the property's price if above $400,000 |
Estimating your closing costs can help ensure a smooth last step in your real estate transaction.
Credit: Image by John Schnobrich | Unsplash
Understanding Closing Costs
D.C. closing costs typically range between 2% to 5% of the purchase price. Given the median home value of $542,877, you can expect your closing costs to range from $12,757.61 to $27,143.85.
To give you a better idea of how much are closing costs in D.C., the tables below show the cost ranges for both buyers and sellers based on the median purchase price of $542,877 and varying home purchase prices.
Buyer
| Home Purchase Price | Buyer’s Closing Cost (2% to 5%) | Total Upfront Cost (With 20% Down Payment) |
|---|---|---|
| $271,438.50 | $6,378.80 to $13,571.93 | $60,666.50 to $67,859.63 |
| $407,157.75 | $9,568.21 to $20,357.89 | $90,999.76 to $101,789.44 |
| $542,877.00 | $12,757.61 to $27,143.85 | $121,333.01 to $135,719.25 |
| $814,315.50 | $19,136.41 to $40,715.78 | $181,999.51 to $203,578.88 |
| $1,085,754.00 | $25,515.22 to $54,287.70 | $242,666.02 to $271,438.50 |
Seller
| Home Purchase Price | Seller’s Closing Cost (8% to 10%) |
|---|---|
| $271,438.50 | $21,715.08 to $27,143.85 |
| $407,157.75 | $32,572.62 to $40,715.78 |
| $542,877.00 | $43,430.16 to $54,287.70 |
| $814,315.50 | $65,145.24 to $81,431.55 |
| $1,085,754.00 | $86,860.32 to $108,575.40 |
Credit: Image by Unseen Studio | Unsplash
Types of Closing Costs
Now that you have an idea how much you will have to pay in closing costs, whether you’re a home buyer or a seller in the D.C. Metro Area, let’s take a look at each of these costs and what role they play in your real estate transaction.
Loan Origination Fees
The loan origination fee is charged by the lender for processing the loan application and is usually a percentage of the loan amount.
Appraisal Fees
This fee is paid to the appraiser for assessing the value of the home.
Title Insurance
The title insurance is obtained to protect the buyer in the event of any title issues.
Escrow Fees
The escrow fee is the remuneration charged by the escrow agent for their services, including clearing the house for sale and transferring the ownership to the buyer and the respective funds to the seller.
Property Taxes
This is a prorated amount of property taxes based on the number of days left in the tax year.
Credit: Image by Scott Graham | Unsplash
Homeowners Insurance
This refers to the annual premium for insurance that protects the home against damage and theft.
Home Inspection Fees
This is the fee paid by the seller to have the property inspected to identify any major defects and issues that they must resolve before selling.
Attorney Fees
The fees paid to a real estate attorney, who guides the owner in preparing the necessary documents like seller disclosure and drafts of other legal paperwork.
Recording Fees
This fee covers the cost of recording the transfer of the home’s title to the new owner.
Transfer Taxes
This tax is levied by the county before the ownership is transferred from the seller to the buyer.
Credit: Image by Tim Gouw | Unsplash
How to Save on Closing Costs
Although closing costs are inevitable, the good news is that you may be able to reduce some of them. Below are some tips on how to reduce closing costs in D.C.
Shop Around for Lenders
One of the first steps of a home buyer is choosing a mortgage lender. Lenders have varying fees, rates, requirements, and perks. You can shop lenders when looking for a mortgage and choose the one with the least expensive origination fees to save money.
Negotiate with the Seller
In a buyer’s market, or if the seller wants to speed up the home sale, the buyer might be able to convince the seller to take on more of the closing costs. You can also negotiate for a lower sale price to lower your closing costs since many of these are a percentage of the sale price.
Ask About Discounts
Another way to lower your total closing costs is to ask for credits or discounts from your lender or service providers. It would be advantageous for you to have a good credit score, a loyal customer relationship, or a referral from your real estate agent.
You can also inquire if you can opt for a no-closing-cost loan. For this type of loan, your lender will cover some or all of your closing costs in exchange for a higher interest rate or a higher loan amount.
Review the Loan Estimate
It’s important to check all the items listed on the loan estimates you get. If you spot any fees or charges that are not mentioned in this article, it is best to reach out to your lender for clarification on what those are and why they’ve been added to the loan estimate.
Conclusion
Closing costs are the final financial hurdle for home buyers and can be hard to afford for some. While you can’t avoid closing costs completely, you can negotiate some of them.
If you need assistance with your home or condominium purchase, please feel free to give me a call at 202-577-8428 or send me an email at James@theGrantGroup.com.
Frequently Asked Questions
What happens if I can't afford to pay my closing costs upfront?
You may apply for special programs that can help cover some or all of the closing costs.
Can I choose my own title company?
Yes, you can choose the title company and escrow agent you’d like to work with. Under federal law, the Real Estate Settlement Procedures Act (RESPA), your mortgage lender, the seller, or your real estate agent cannot require you to buy title insurance from any particular company.
Can I roll my closing costs into my mortgage?
Yes, you can roll closing costs into the mortgage by (1) asking your lender to cover the closing costs in exchange for a higher interest rate or (2) asking your lender to add the closing cost amount to the principal balance of your mortgage.
