Home Buying 101: Understanding Closing Costs

Updated August 25, 2022

When you think of “closing costs," you might see the light at the end of the homebuying tunnel. You’re just one step away from getting the keys and becoming a homeowner!

But first, you wonder, just what are closing costs? Closing costs are an all-encompassing term for the fees you pay on closing day to get the keys to your new home. The majority of closing costs are fees your lender is charged by a third-party company. These costs aren’t usually settled until the end of the loan process, hence the name “closing costs." Closing costs can include credit report fees, loan origination fees, home inspection charges, title insurance, appraisal fees, county record fees, private mortgage insurance or loan funding fees, and even the cost of underwriting the mortgage. Other closing costs that don’t stem from funding the loan are homeowner’s insurance, property taxes, and homeowners association (HOA) fees.

If you're thinking that sounds like a lot, you aren't wrong. Total closing costs in Florida are typically 3 to 6 percent of a home’s sale price once you combine everything from loan origination to homeowners insurance. That’s a hefty chunk of change you may not have expected but never fear, you may not be responsible for paying all of these costs out of your pocket.

Who Pays for Closing Costs?

The homebuyer is generally responsible for part or all of these costs. Fortunately, if you are building with Highland Homes and using a Highland Homes lender partner, you can expect a portion of your closing costs to be paid by Highland Homes. And, if you do not want to pay closing costs with cash out of pocket, some loans allow these costs to be financed into the loan.

You can also negotiate and make closing cost deals upfront with your seller. Oftentimes, the seller or homebuilder will pay your closing costs as part of a home buying incentive package. However, sellers (including homebuilders) are capped or limited on how much they can contribute. The cap varies depending upon the mortgage lender and loan type. If you are purchasing general real estate (aka a used or resale home), your real estate agent can assist you in this negotiation. Also, in a hot real estate market, your seller may not want to take on the costs, particularly if they have multiple offers for the same home.

In addition, there are special cases in which the homebuyer cannot pay closing costs — namely, if you are a veteran using your VA home loan benefit. The Department of Veterans Affairs actually limits what veteran borrowers can pay for closing costs, as a benefit to our nation's heroes.

How are Closing Costs Determined?

Closing costs vary by state and locale, and by mortgage lender. Talking to several lenders gives you a good insight into how these costs can vary. And just as you shopped around for your mortgage rate, you should shop around for closing cost estimates. By talking with several trusted lenders about these costs, you can get an idea of what you could be paying later if you go with their company. Once you apply, the lenders will provide you with a formal Closing Cost Estimate.

Closing costs are part of the homebuying process, and for most people, it’s a given that you’ll have to pay part of them so it’s smart to cut costs where you can and make your dollars count. With this information, you could pay fewer closing costs than you initially thought.

About Highland Homes

As one of Central Florida and Tampa Bay’s largest privately-owned homebuilders, Highland Homes is proud to build new homes designed for your life in communities throughout Central, North Central, Southwest, and Tampa Bay, Florida. Browse our website for helpful information about getting pre-qualified with a Highland Homes lender partner and finding your new home in Florida, or connect with our Florida New Home Specialists by calling 863-797-4999.

Information deemed reliable at the time of publishing; subject to change without notice. For the most up-to-date Lender Partners and mortgage financing information, visit www.highlandhomes.org/financing.