The basics of closing on a home and buyer fees

Closing costs can add 2 to 5 percent of the purchase price to the cost of buying a home. Find out about these fees here. (iStock)

Millennials make up the largest share of home buyers, but people of all ages are expected to purchase homes in 2020, according to the National Association of Realtors. About one-third of buyers are first-timers, which means they have to navigate the process without the benefit of experience -- and one of the most complicated parts surround closing on a home.

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Closing is the last step in the home-buying process. It occurs when buyers and sellers sign paperwork, exchange money, and the buyers take ownership. Depending on where you live, it could be handled by an attorney or title company and it always comes with significant costs. Before deciding if you're ready to buy, you need to make sure you're prepared for the home closing process and the expenses associated with it.

How long does it take to close on a home?

When you make an offer on a home, you'll include the date you want to close. It usually needs to be at least 30 to 45 days from the time your offer is accepted to provide time to do due diligence – make sure the home is a good investment – and get approved for a mortgage.

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Before closing, the steps you'll have to take include:

  • Applying for a mortgage and providing all documentation necessary to get approved, including tax returns and proof of income and assets.
  • Undergoing a home inspection and negotiating any necessary repairs.
  • Completing a survey of the property.
  • Undergoing a title search to make sure there are no outstanding liens or other claims on the property.
  • Finding a title insurance company to insure you in case claims on the property aren't found in the title search.
  • Finding a home insurance company.

Once you've been approved for a mortgage and have done all the necessary research, you can move on to closing. You can close at your attorney's office or the title company's office, and the process may take anywhere from a few minutes to several hours depending on whether all the paperwork is ready. Or you can schedule a remote closing, which means required documents are sent to you and you'll have to sign them in front of a notary before sending them back.

What you need to bring to the closing

Many documents you'll need at closing will be provided by others, including the bank issuing your mortgage, the title company or attorney. These professionals bring a promissory note and mortgage disclosures, among other essential forms.

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However, you'll need to bring a few things including:

  • Government-issued identification crsuch as your passport or driver's license.
  • A cashier's check from your bank or a receipt from a wire transfer for funds due (you cannot write a personal check).
  • Your closing disclosure received prior to closing. You're entitled to receive this at least one day in advance and should compare it to paperwork you sign on closing day.

How much are closing costs

The amount you'll pay in closing costs depends on many factors, including the state where you live, the costs associated with your mortgage, whether you'll pay into an escrow account for insurance and taxes, and whether your new home has a homeowner's association.

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Typically, closing costs total around 2 to 5 percent of the value of the home you're purchasing, according to Zillow. They can include:

  • Pro-rated property taxes
  • Homeowner's insurance fees
  • Mortgage costs, including origination or application fees and credit check fees
  • Several months of taxes and insurance for the escrow account
  • Title insurance fees
  • Attorney's fees and/or fees paid to the title company overseeing the closing

There may also be additional closing costs like document or courier fees, a transfer fee charged by the homeowner's association, or inspection fees. The full list of what you'll owe can be found in your closing statement.

Plan for closing costs when you're purchasing a home

First time home buyers can't afford to make the mistake of not considering the costs of closing on a home. But every buyer and seller needs to plan for these expenses. Sellers incur a variety of fees, including realtor commissions. And even homeowners simply doing a cash-out refinance will incur closing costs, even though they aren't purchasing a new house.

Plan for the fees involved and you can ensure the transaction goes off without a hitch.