The True Costs of Buying a House

You've finally found your dream home, signed the purchase contract, and are ready to celebrate. Then you receive your Loan Estimate or preliminary closing statement — and suddenly, you’re hit with a wave of unexpected charges. What are these fees, and can you avoid any of them?

Understanding closing costs can make the process smoother and less stressful. The Red Sign Real Estate Team is here to break it down for you and help you navigate your home purchase with confidence.

What Are Closing Costs?

Closing costs are the fees and charges required to complete the sale of a home. These are separate from the purchase price and are due on your closing date.

According to ClosingCorp, Americans pay an average of $6,905 in closing costs, though this number varies based on location and home price. For example, while closing costs in Utah are typically around 2% to 5% of the home price, areas like Washington, D.C., can see costs as high as $29,888.

The bulk of these fees go toward title services, lending fees, and taxes. Let's break down the most common closing costs and ways to potentially reduce them.

Common Buyer Closing Costs

Without a Mortgage

Even if you’re paying in cash, some fees will still apply:

Title Review Fee

The title agent examines the deed and title for any outstanding liens or claims and confirms that the seller is the legitimate owner of the property. This thorough process typically costs about $200.

Property Taxes

In some states, property taxes are paid in advance for the upcoming year. As a result, buyers may need to reimburse the seller for the portion of taxes the seller has prepaid for the period when they will no longer own the property.

On your closing statement, any property tax charges will be shown as a prorated amount. This calculation divides the total taxes paid by the seller by the number of days in the tax year. You, as the buyer, will only be responsible for reimbursing the seller for the taxes covering the days you'll own the home.

Inspections

Certain property inspection fees may be payable at closing, while others are due upfront when services are rendered.

Be sure to track which inspections you've paid for immediately and which ones will be settled at closing. These inspections can include a general home inspection, pest inspection, lead-based paint inspection, roof inspection, foundation inspection, and others, depending on the specific needs of the home.

Transfer Tax

A transfer tax is a government-imposed fee for recording a change in property ownership. This tax isn’t required in all states, and those that do have it use varying formulas to determine the amount.

For instance, Arizona charges a flat $2 fee, while in some areas of New York, the tax can be as high as 2.65% of the home’s price. In certain cases, local tax stamps may also be added to the transfer tax.

Attorney Fee

In some states, buyers are required to have legal representation during the closing process, which means you'll need to hire and pay an attorney. These fees can vary significantly based on the attorney you choose, so it’s wise to compare rates. Typically, attorney fees at closing range from $400 to $1,500.

Closing (Escrow) Fee

This fee, sometimes referred to as the “escrow fee,” is paid to the company managing the money, title transfers, and paperwork—typically a title company. The fee can vary depending on the company and location, and it’s often calculated as a percentage of the home’s sale price rather than a fixed amount.

Usually, the buyer and seller split this cost evenly. While you can shop around for competitive rates, your real estate agent will likely recommend a trusted local title or escrow company to assist you.

HOA Transfer Fee

If your new community is managed by a homeowners association (HOA), you may be required to pay a transfer fee. This fee is separate from your annual dues and is used to cover administrative costs, such as processing paperwork and recording documents by the HOA board or committee.

Transfer fees can vary significantly from one neighborhood to another, although some states impose a cap on the amount. Your real estate agent can help you obtain details about the HOA transfer fee for your specific community.

Real Estate Agent Commission

Real estate agent fees are usually covered by the seller, but in certain multiple-bid situations, the buyer may be responsible for the commission.

Typically, real estate agent commissions range from 5% to 6% of the sale price, with the total amount divided between the seller's agent and the buyer's agent.

Title Insurance

Even without a mortgage, title insurance is recommended to protect against ownership claims. Costs vary, but your agent will provide guidance.

With a Mortgage

Buyers financing their home will encounter additional lender-related fees, such as:

Application Fee

Some lenders charge up to $500 to process your application. Compare lenders to avoid unnecessary fees.

Survey Fee

A lender will require a current survey to establish and confirm the property's boundaries before issuing a mortgage. On average, a survey costs around $527, and in some cases, buyers may need to pay this fee directly to the survey company before closing.

Appraisal Fee

To verify the home’s value, an appraisal (about $354) is required.

Origination Fee

Covers loan processing costs and usually ranges from 0.5% to 1% of the loan amount.

Underwriting Fee

Underwriting is the process of evaluating whether you are a suitable candidate for a loan. During this process, underwriters review your credit, employment, and financial history to assess the lender's risk in approving you as a borrower, which ultimately influences your loan approval.

In some cases, underwriting fees are included in origination fees. When listed separately, underwriting fees typically range from $300 to $900.

Flood Determination Fee

If your new home is located in or near a high-risk flood area, your lender may require a flood inspector to evaluate the need for flood insurance. However, in most cases, the designated FEMA flood zone will be sufficient for this determination.

Rate Lock Fee

To secure an interest rate between pre-approval and closing, some lenders may charge a rate lock fee. This is typically a one-time fee at closing, costing around 0.5% (or less) of the loan amount.

Mortgage Insurance (MI)

If your down payment is under 20%, expect to pay mortgage insurance, typically between 0.5% to 1% of the loan amount annually.

Discount Points

A discount point is an upfront fee paid to reduce the interest rate for the life of your mortgage. Typically, one point costs 1% of the loan amount and lowers the interest rate by about 0.25%. Most lenders limit the number of points you can purchase, and you will discuss this with your lender before closing.

Prepaid Daily Interest

This fee covers the mortgage interest that accrues between closing and your first mortgage payment.

Title Insurance

Title insurance protects both the buyer and the lender from future ownership issues, such as undiscovered liens, deed discrepancies, or unknown heirs. Lenders generally require a title insurance policy that covers both the buyer and the lender. The cost for title insurance depends on the home's price and location, with the national average around $1,400 for both policies. In some states, it is customary for the seller to pay this fee, so consult with your real estate agent about local practices.

FHA or VA Fees

For FHA loans, there is a 1.75% mortgage insurance fee based on the loan amount, which may be due at closing or rolled into monthly payments. For VA loans, a funding fee may be required at closing depending on your military classification.

Recording Fee

This is a small administrative fee charged by the government agency that records the mortgage and ownership transfer. Fees typically range from a few dollars to a few hundred dollars, depending on the complexity of the documentation.

Credit Report

The lender will obtain a credit report during the application process, and you will usually receive a copy. The cost for the credit report is typically between $30 and $50.

Escrow Deposit

Many lenders require an initial deposit into an escrow account for homeowners insurance and property taxes. This deposit is typically equal to two months’ worth of escrow contributions.

Mortgage Broker Fee

Mortgage brokers are often paid by the lender, but if you've worked with a buyer-paid broker, you may be responsible for their fee at closing. These fees usually range from 0.5% to 2% of the loan amount. Be sure to clarify who is responsible for this fee before engaging with a mortgage broker.

Ways to Save on Closing Costs

1. Shop Around

Compare rates and fees for lenders, inspectors, and title services. Ask for recommendations from the Red Sign Real Estate Team for trusted professionals.

2. Close at the End of the Month

Closing near month-end reduces the number of days you'll prepay mortgage interest.

3. Negotiate with the Seller

In slower markets, sellers may agree to cover part of your closing costs. This tactic works best on homes that have been listed for a while.

4. Review Your Fees with Your Lender

Your lender will provide a Loan Estimate early in the process. Review it closely, and ask about any fees that seem unclear or negotiable.

Ready to Navigate Closing Costs?

Buying a home in Utah doesn’t have to be overwhelming. With the right guidance from the Red Sign Real Estate Team, you’ll know exactly what to expect and how to minimize expenses. Our experienced agents are here to answer your questions and help you every step of the way.

Reach out today and let’s make your dream home a reality!