Understanding Closing Costs

Closing costs, also referred to as settlement costs, are charges that are assessed during a residential real estate transaction from the lender/broker, various third parties, and the government.

Closing costs can amount to 5 to 6% of the purchase price of a home. These costs are usually paid on the day the purchase is finalized. Whether the buyer or the seller pays the various closing costs is negotiable.

Closing costs are referred to by many different names on a Good Faith Estimate and the HUD-1 Settlement Sheet.

Avoiding Over-Inflated Closing Costs

The Department of Housing & Urban Development (HUD) holds primary regulatory and enforcement power over RESPA (Real Estate Settlement Procedures Act), which governs much of the process and documentation involved with home closings.

This federal law prohibits brokers, lenders, title agencies, and other real estate professionals from receiving:

• Kickbacks from referrals
• Fees when no services are performed to support the charge (referred to as abusive fees or "junk" fees)

Review all closing fees you are asked to pay. Many of these fees may be over-inflated and in violation of federal law.