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What are Closing Costs When Buying a Home?
Jennifer Hernandez • July 31, 2023
Buying a home is an exciting time! As you are preparing for your purchase, whether its your first time, or your tenth time, there are changes constantly happening in the industry! This article will cover closing costs when purchasing a home, which are paid in addition to any down payment.
Not only are there closing costs the day of closing, but we have a helpful article about other hidden costs of purchasing a home that is good to be aware of.
What Are Closing Costs?
Closing costs refer to the expenses associated with the completion of a real estate transaction when purchasing or refinancing a home. These expenses are in addition to the purchase price or refinance loan balance of the home. Closing costs are a variety of fees and expenses that are paid at the closing day. Whether you pay cash or finance, there are fees involved. Paying cash definitely reduces required fees. Almost an estimated 70% of people finance homes, so that is what this article will concentrate on.
Closing costs can vary depending on state in which you are buying, so we always recommend checking with a
local state lender where you live . It is important to consider closing costs when buying a home as they can impact the total cost of the purchase.
Other Closing Costs
In addition to lender fees, there are other services that are required to coordinate for the home purchase or refinance to happen. Keep in mind that some of these fees are still also present if paying cash for the home.
- Home inspection fees are one such expense. A home inspection is not required by any lender, but certainly advised. This inspection makes sure the buyer is aware of the inner mechanical safety and workings of the home . The cost of a home inspection can vary depending on the size and location of the property and the complexity of the inspection. Your local realtor or local lender will have a good idea of how much typical inspections are in your area.
- Title insurance is another expense that is included in closing costs. Title insurance will be mandatory if you obtain a mortgage loan. If you are paying cash, it is definitely advisable, but not mandatory. Title insurance protects the buyer , and lender if applicable , from any issues that may arise with the title to the property. It ensures that the buyer is receiving clear title to the property from the seller, and that all debts, liens, and property taxes are cleared. It also ensures there are no breaks in the chain of title , ie ownership. The cost of title insurance can vary depending on the purchase price of the property.
- Government fees for recordings and possibly state or local taxes are also due . Again, this will vary from state to state, and even city to city. So check with your local lending contacts for accurate estimates.
- A property survey is a meets and bounds summary of the boundaries of your property. It will show building lines, easements for utility companies such as electric and gas, so that you know any restrictions for future improvements to your property.
- Homeowners Association Dues are basically neighborhood fees. Depending on your state and /or local area , you may or may not have these fees. Usually if you are in a non zoned area, the neighborhood will have deed restrictions that govern the area. And that means dues likely are paid. At the time of purchase, it will be disclosed to you if this applies to you. If you are buying a condo or townhome, it should definitely be an expectation that these fees will be paid monthly, versus annually for most single family neighborhoods, if applicable.
These costs can add up quickly and significantly increase the overall cost of buying a home. By being aware of all of the expenses involved in the home buying process, buyers can better budget and prepare for the costs of owning a home.
It's also important to note some common
hidden fees when buying a home.
How much are Closing Costs typically?
Closing costs can vary depending on various factors, such as the location of the property, the type of mortgage, and the lender. According to Bankrate, closing costs can range from 2% to 5% of the purchase price of the home. Most closing costs are fixed, like lender and title fees. But, what can be variable, and dependent on the purchase price, are the prepaid property taxes and homeowners insurance. Many loans require the establishment of an escrow account for property tax and insurance. For this reason, it is crucial to get a loan estimate of closing costs from your local lender and to review the estimate carefully to ensure that all fees are understood.
Unexpected Costs When Closing On A Home
It is important to be prepared for unexpected costs when buying a home. In addition to the estimated closing costs, there may be unexpected fees or expenses that arise during the home buying process. It is a good idea to set aside some extra money to cover unexpected costs or to negotiate with the seller to cover some of the costs.
Here is a great article on the Top Hidden Costs When Buying A Home.
Negotiating for the Seller to Pay Closing Costs
When buying a home, negotiating closing costs can save a large amount of money. The seller may be willing to contribute an amount to the buyer's closing costs. This can help reduce the financial burden of purchasing a home.
If obtaining a loan from a financial institution, like a Conventional or FHA loan, there are limits in place that restrict the amount that a seller can contribute. In general, conventional loans will limit on a primary residence the seller credit to 3 ,6 or 9 percent of the purchase price, depending on your down payment. An FHA loan, has a flat 6 percent of the purchase price limit. IMPORTANT NOTE: The amount of seller credit cannot exceed your actual closing costs . In many cases, once the loans exceed 300,000 or so, the allowable credit is more than the actual costs. This would be a great time to increase costs with mortgage discount points to buy the rate down, or even fund a 2/1 buydown of the interest rate. That would increase your closing costs, so that you could reap more credit from a seller if negotiated!
Just remember that anything is negotiable, and can be more successful when you are using a realtor, who will have lots of experience in this area. Realtors know the market, and know how to talk to sellers and their agents about what can be a fair offer for both buyer and seller.
One way to negotiate with the seller is to offer to pay a slightly higher buy price. This can be in exchange for the seller covering a part of the closing costs. Of course no one wants to pay more, but for some buyers, especially first timers, this can be a huge help in out of pocket expenses. When you spread a slightly higher price over 30 years, the change in your mortgage payment is usually negligible.
Another choice for reducing closing costs is to shop around for lenders that offer lower closing costs. Some lenders may be willing to waive certain fees or offer discounts, which can help lower the cost of obtaining a mortgage.
It's important to keep in mind that negotiating closing costs is not always possible or successful. However, it's worth exploring different options and working with the seller and lender to find ways to reduce the financial burden of closing costs.
Did you know that there is a strategy that buyers can use to temporarily reduce monthly mortgage payments for the first 2 years of the loan? This strategy can be especially useful when rates are at a higher than normal level. The 2/1 Buydown could be just the product you are looking for and may help offset the closing cost fees in your real estate transaction.
Here is a comprehensive guide on how you can save hundreds on your mortgage payment by choosing the 2/1 Buydown.
How to Offset Closing Cost Fees
Partner with Loan Expert Jen
Closing costs can be a significant expense when buying a home. It's crucial to understand them and make a budget.
Negotiating with the seller or finding a lender that offers lower closing costs can also help reduce these expenses. If you're in Texas and looking for a reliable and experienced loan officer, who has been in the business since 1995, consider working with Loan with Jen.
We can guide you through the home-buying process and help you navigate the complexities of closing costs. Contact her today to get started.
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Buying a home is one of the biggest financial and emotional decisions you'll ever make. But how do you really know if you're ready? In this article, we’re breaking down five clear signs that you might be ready to buy a house—and one red flag that means you may want to wait. Whether you’re a first-time buyer or just testing the waters, this guide will help you move forward with clarity and confidence. Sign #1: You’re Financially Stable The first green light? Consistent income and job stability. If you’ve had a steady paycheck for at least two years (especially in the same industry), that’s a strong start. But it goes deeper than income: You should also have: An emergency fund covering at least 3–6 months of expenses Savings for a down payment (typically 3%–20% of the home price) Money for closing costs and moving expenses Pro Tip: Many buyers underestimate how much they’ll need after the down payment. Check out this mortgage planning article to avoid that mistake. Texas-Specific Tip: Texas has no state income tax—but property taxes are higher than the national average. Be sure to budget accordingly. You can estimate local taxes via the Texas Comptroller’s Property Tax site. https://comptroller.texas.gov/taxes/property-tax/rates/index.php Sign #2: You’ve Got Manageable Debt & Decent Credit Your debt-to-income ratio (DTI) and credit score directly impact your ability to qualify for a mortgage—and the rate you’ll get. A credit score above 620 is usually the minimum for most loan types The higher your score, the lower your interest rate—potentially saving you thousands over time If you're carrying high-interest debt, it might be wise to pause and reduce it before buying Your debt-to-income ratio is under 55%. Want to learn more? Watch How Your Credit Score Affects Your Mortgage . Sign #3: You’re Ready to Stay Put Buying a home makes more sense if you plan to stay in one place for at least 3–5 years. Why? Because selling a home comes with closing costs, commissions, and possibly capital gains taxes. If you move too soon, you may not have built enough equity to make it financially worthwhile. Ask yourself: Are you planning to stay in the same city or job? Do you feel ready to settle down a bit? Sign #4: You’re Ready for the Responsibilities of Ownership Homeownership isn’t just about finances—it’s a lifestyle shift. Are you ready to: Maintain a yard Handle repairs Budget for appliances or home upgrades These are everyday realities renters don’t usually deal with. If you’re ready to take that on, it’s a strong sign you’re ready to buy. Need a reality check? Watch The Real Cost of Homeownership for a behind-the-scenes look. Sign #5: You’ve Budgeted for the Full Cost of Homeownership It’s easy to focus just on your monthly mortgage payment—but that’s only part of the picture. You also need to budget for: Property taxes Homeowners insurance Maintenance and repairs HOA fees (if applicable) If you’ve run the numbers and still feel comfortable, you’re probably in good shape. Red Flag: You’re Buying Out of FOMO If your motivation to buy a house is: Everyone else is doing it You’re afraid of being priced out You feel pressured by social media or family Take a step back. Fear of Missing Out (FOMO) is not a solid reason to buy a home. Your decision should be based on your goals, your finances, and your lifestyle—not the market hype. Not Sure If You’re Ready? We’ve Got You Covered Download our free Homebuyer Readiness Checklist to see where you stand Check out our Blueprint to Homeownership course for a step-by-step guide through the buying process Bottom Line Buying a house isn’t something to rush—but with the right preparation, it can be one of the most rewarding decisions you ever make. If you feel financially stable, ready for long-term commitment, and confident in your lifestyle plans—you may be ready to take the next step. Have questions? Reach out here Book a 15 Mins Call and we’ll walk you through it. Want more clear, honest mortgage advice? Subscribe to Loan With Jen on YouTube
Think you can’t afford to buy a home? You might be surprised. The income you actually need may be lower than you think. In fact, most people are asking the wrong question entirely. In this post, we’ll break down: How lenders really decide what you qualify for A simple formula to estimate your price range Why your debt matters more than your income Plus—how first-time buyers get approved with less than you’d expect It’s Not Just About Income—It’s About Debt-to-Income Ratio (DTI) Most people think income alone determines your buying power. But lenders focus more on your Debt-to-Income Ratio (DTI) . Here’s how DTI works: Your total monthly debt ÷ your gross monthly income = your DTI Most lenders want this ratio to be 45% or lower , though some loan programs will allow more. This calculation includes: Your new mortgage payment Property taxes Insurance HOA fees (if applicable) Any car loans, student loans, or credit card minimum payments Example: Let’s say you make $75,000 per year—that’s $6,250/month gross income. 45% of that = $2,812 Now subtract your monthly debts: Car loan = $500 Credit card payments = $300 Total = $800 That leaves you with about $2,000/month for a mortgage payment. What Kind of House Does $2,000/Month Get You? With interest rates around 6.5% , that could get you a home priced at $260,000–$280,000 , depending on your: Down payment Property taxes Location HOA dues Of course, this is just an estimate. You can plug your numbers into a mortgage calculator to get a more accurate idea based on your location and situation. How Loan Types Impact Income Requirements Your loan program plays a big role in how much home you can afford. Here’s a quick breakdown: FHA Loans : Allow DTIs up to 50%, and only require 3.5% down VA Loans : For veterans—no down payment required and very flexible income requirements Conventional Loans : Stricter guidelines; usually require 43–45% DTI and 3–5% down USDA Loans : No down payment, but must be in eligible rural areas and meet income caps And remember— a larger down payment means a smaller monthly mortgage , which helps you qualify for more. Credit Scores and Reserves Matter Too Even if you qualify on paper, your credit score and cash reserves play a key role: Higher credit score = lower interest rate = lower monthly payment Reserves are how much money you have in the bank after closing. Many lenders require at least 1–2 months of mortgage payments in reserves. Even if your income is borderline, having reserves can tip the scales in your favor. Real Buyer Stories: It’s More Possible Than You Think Story 1 : A couple earning $90K/year thought they needed to wait because of student loans. But with FHA, 3.5% down, and minimal other debt, they got approved for $325K—and closed on a home last month. Story 2 : A single teacher earning $52K/year bought a $210K condo using just 3% down and a first-time buyer grant. She didn’t think she qualified—until she did. Don’t Forget Side Income or Co-Buying You might qualify for more than you think if: You co-buy with a spouse, parent, or sibling You have side income (Uber, freelance, small business) that’s been on your taxes for at least 2 years That extra income can help you get approved. The Formula: Estimate What You Can Afford Here’s a quick formula to ballpark your buying power: Take your gross monthly income Multiply by 0.45 (max DTI) Subtract your monthly debts The remainder is your max mortgage payment (including taxes & insurance) Use a mortgage calculator to plug in that number and see what home price you might qualify for. Online mortgage calculators don’t take tax or insurance into consideration most times, but this will give you a ballpark figure. Before you get your heart set on a house though, reach out to a lender to find out your true buying power. It costs you nothing to get this information! Bottom Line: You Probably Don’t Need Six Figures to Buy a Home Most buyers are surprised by what they can afford. The key is understanding how lenders look at your full financial picture—not just your income. You don’t have to guess. And you don’t have to go it alone. Next Steps Take our FREE Blueprint to Homeownership course for a step-by-step guide Reach out to our team for a free strategy call —we’ll help you crunch the numbers and create a plan If you found this helpful: Subscribe to the Loan With Jen YouTube channel for weekly tips
You’re not starting over—you’re starting fresh. And yes, you can buy a home after a divorce. If you’re navigating a divorce or separation, I want to start with this: Big hug. Big kiss. This season of your life might feel uncertain or overwhelming, but you’re not broken. You’re rebuilding—and I’m here to help. Let’s walk through the 5 most common mistakes people make when trying to buy a house after divorce —and how to avoid them. 1. Your Credit Tells the Real Story—Not Just the Divorce Decree Here’s what most people miss: Even if a divorce decree says your ex is responsible for a shared mortgage or credit card, your name on the account means it’s your responsibility in the lender’s eyes. That means: Late payments by your ex will still hit your credit. A mortgage that your ex was supposed to refinance but didn’t? Still counts against your debt load. What to do: Pull your full credit report from all 3 bureaus : Experian, Equifax, and TransUnion Review all joint accounts : Are they closed? Paid off? Still open? Check if your ex has refinanced you off the mortgage —don’t assume, verify! Collect documentation if the mortgage responsibility was transferred Pro Tip: As a lender, I can do a soft credit pull for you—no ding to your score—to identify red flags before you apply! 2. Income After Divorce—What Counts (and What Doesn’t) Post-divorce income can be complex. Whether you're earning on your own or receiving support payments, lenders need proof of stability and consistency . What lenders typically require: W-2 income or 2 years of self-employment returns At least 3–6 months of child support or alimony payments (with documentation) A copy of your final divorce decree or court-ordered support agreement Watch out for: Informal payments (Venmo, cash) with no paper trail Newly ordered support that hasn’t been received yet Significant drops in income—these must be accounted for Pro Tip: If your income has decreased after divorce, we can explore co-borrowers, grants, or flexible loan programs to help you qualify. 3. The Old Mortgage Can Haunt You (Even If You Don’t Live There) Even if your ex is living in the home and paying the mortgage, if your name is still on the loan, it counts against your debt-to-income ratio. This can affect how much you qualify for—even if you’re renting now or planning to buy something smaller. How to handle it: Ask your ex to refinance the home and provide a release of liability from the lender. Ask the lender - before you are off the loan and still authorization to speak to the lender - to provide you with instructions on how to receive a release of liability. If refinancing isn’t happening, collect 12 months of canceled checks or bank statements showing your ex is paying from their own account If those options aren’t possible, you may need to wait until the home is sold or work with a lender who understands how to navigate this scenario 4. Don’t Skip the Emotional Prep—Buying a Home Is a Big Deal Divorce doesn’t just impact your finances—it affects your emotions, too. Even if you're financially ready to buy, make sure you’re mentally and emotionally ready to take on homeownership again. This is especially true if you're moving from a home that holds memories or are co-parenting with children. Ask yourself: Am I rushing to buy just to feel “settled”? Is this home choice based on my new lifestyle , not my old one? Do I have the support system and clarity to take on this responsibility? Mindset Tip: Your next home should support your fresh start , not keep you tied to the past. You’re building your life now—on your terms. 5. Timing Is Everything—Don’t Rush the Process After a divorce, it’s tempting to try and “fix” everything fast. But buying a home is a major financial move, and sometimes waiting just a few months can make a big difference. Reasons you may want to pause briefly: Waiting for credit to improve Gathering more documentation or saving for a down payment Giving support payments time to become “seasoned” (most lenders want 3–6 months of consistent payments) That said, you don’t have to put your life on hold forever. The key is working with someone who knows the post-divorce lending landscape and can help you make informed choices. You’re Not Alone—And You Can Do This Whether you're newly separated or a year into your new chapter, you deserve a place to call your own. And you don’t have to navigate this alone. Ready to get started? Here are your next steps Get a free credit and income readiness review —just message me Take my Blueprint to Homeownership course if you want a full step-by-step roadmap. You’ve got options. You’ve got support. And most importantly—you’ve got this. I’m here to help you rebuild with confidence. Let’s find your fresh start.
Did you know that buying a home doesn’t just build equity… it actually lowers your tax bill every single year ? Whether you're a first-time homebuyer or looking to grow your investment portfolio, real estate offers powerful tax advantages that most people don’t even realize exist. I even have a legal strategy that helps real estate investors defer taxes on hundreds of thousands of dollars in profit. Why Does Real Estate Have So Many Tax Perks? Simple: The government wants you to buy real estate. Homeownership and property investment fuel the economy, so the IRS offers major tax incentives just for owning property. But many people miss out on these benefits—either because they are unaware or didn’t plan ahead with a qualified professional. Tax Benefits for Homeowners (Primary Residence) If you’re buying a home to live in , here are the top 3 tax perks you need to know: 1. Mortgage Interest Deduction You can deduct the interest portion of your mortgage —which is a huge portion of your payment in the early years. For most people, the deduction applies to loan amounts up to $750,000 (if married filing jointly). Fo example, if your loan is $400,000 at 6% interest, you’re paying ~$24,000 in interest your first year—most of which may be deductible. 2. Property Tax Deduction You can deduct state and local property taxes , up to $10,000 per year (or $5,000 if married filing separately). While not as generous as it once was, it’s still a meaningful deduction, especially in higher-tax areas like Texas . For Texas-specific property tax resources, check out the Texas Comptroller’s Property Tax Help page. https://comptroller.texas.gov/taxes/property-tax/ 3. Capital Gains Exclusion When you sell your primary home, you may be able to exclude up to $250,000 of the profit (or $500,000 if you are married) from capital gains tax. The catch: You must have lived in the home for at least 2 of the last 5 years. That means if your home appreciated $400,000 and you're married—you could pay zero tax on that gain! Watch: How to Avoid Capital Gains Tax on Your Home Sale Tax Benefits for Real Estate Investors This is where the real tax magic happens. As an investor, you’re not just earning income—you’re tapping into one of the most tax-advantaged asset classes in the country. Here are five big tax breaks available to real estate investors: 1. Depreciation Even if your rental property is appreciating in value, the IRS lets you “pretend” it's losing value for tax purposes—this is called depreciation . A $275,000 rental property (excluding land) can generate $10,000/year in depreciation —offsetting your rental income on paper and lowering your taxable income.
If you're planning to buy a home in the U.S. and you're currently on a work visa or other visa status , this news directly impacts you. As of March 26 , the FHA (Federal Housing Administration) announced it will no longer accept applications from visa holders , regardless of the type of visa. This change may come as a shock, especially if you’re in the middle of the homebuying process or have already been pre-approved. Let’s break down what this means—and what options are still available to you.