What are Closing Costs?
Closing costs are the end of the gauntlet when buying a house. They include a long list of fees incurred, which we have examined in detail below. Many of them go to third parties, like lenders or attorneys. The term “closing” refers of course to the last stage before the keys change hands. Typically, the buyer pays for closing costs, while the seller handles costs like realtor commissions. However, everything is open to negotiation throughout a real estate transaction, including closing costs in Denver, Colorado and its red-hot housing market.
If you are among the lucky few who can buy a house without a mortgage, your closing costs will diminish significantly.
Average Closing Costs for the Median Home in Denver
Closing costs vary for every real estate transaction. No two contracts are the same. Very often, the closing costs for Denver homes are 3% to 5% of the sales price. Using that formula with the median home price in Denver, buyers typically pay within a range of $12,364 to $20,606.
That said, there are many factors that can influence a bottom line. Because the current market in Denver is very healthy, buyers may have more difficulty negotiating lower closing costs. If you understand the importance of working with a real estate professional and would like to get a more accurate estimate of closing costs, you can contact us today.
Breakdown of Denver Closing Costs
We have compiled an exhaustive list of potential fees included in closing costs in Denver, Colorado. Not every sale is the same, and not every closing will include all of these costs. If you would like to educate yourself on where your money is going—or if you simply need convincing to hire an excellent realtor to navigate these waters for you—take a look.
Common Fees in Closing Costs in Denver, CO
- Application Fee
- Closing Fee or Escrow Fee
- Courier Fee
- Credit Report
- Escrow Deposit for Property Taxes & Mortgage Insurance
- Home Inspection
- Homeowners’ Insurance
- Lender’s Policy Title Insurance
- Origination Fee: a fee charged by a lender on entering into a loan agreement to cover the cost of processing the loan
- Pest Inspection
- Prepaid Interest: Typically determined on a prorated basis, prepaid interest is the amount owed to a lender before a first mortgage payment is due.
- Property Tax
- Recording Fees: the fee charged by a government agency for registering or recording a real estate purchase or sale, so that it becomes a matter of public record
- Survey Fee
- Title Company Title Search or Exam Fee
- Transfer Taxes: Gifts and legacies donated for charitable purposes are not subject to transfer taxes
- Underwriting Fee: a fee charged by a mortgage lender for preparing the loan and associated paperwork
Other Potential Fees in Closing Costs in Denver, CO
- FHA Up-Front Mortgage Insurance Premium (UPMIP)
- Flood Determination or Life of Loan Coverage
- Home Owners Association Transfer Fees
- Lead-Based Paint Inspection
- Loan Discount Points: also known as mortgage points, these are fees paid directly to the lender at closing in exchange for a reduced interest rate; typically one point equals one less percentage point on the mortgage
- Owner’s Policy Title Insurance
- Private Mortgage Insurance (PMI): a special type of insurance policy, provided by private insurers, to protect a lender against loss if a borrower defaults. Most lenders require PMI when a homebuyer makes a down payment of less than 20% of the home’s purchase price
- VA Funding Fee
Strategies for Reducing Closing Costs
1. Shop Around for the Best Lender
Extra effort at this stage could pay off big time. Just as with buying a new car or any other major expense, it’s worth it to know what the entire market looks like. When you get quotes from multiple lenders, you arm yourself with bargaining chips.
2. Shop Around for Other Third Parties
Just because your lender recommends a particular pest removal service or surveyor does not mean you must use their suggestions. Ask which elements of the closing costs can be swapped out for a business of your choosing. At this point in the purchasing process, this may require lots of stamina. Remind yourself how much money you stand to save with a bit of extra effort, and find the best options for you.
3. Negotiate with Your Lender
When you receive your loan estimate, go through each element with your lender. Attention is money. There is a decent chance the loan estimate has been padded with unnecessary or duplicate fees. Ask about each fee in particular and whether it is absolutely necessary. Then ask for some of those fees to be knocked off.
4. Compare the Closing Disclosure and Loan Estimate
There may be discrepancies between the loan estimate and the closing disclosure. Ask your lender to share the closing disclosure with you as soon as it’s available in order to check for inconsistencies. If you find any, be sure you ask your lender for the reason.
5. Negotiate with the Home Seller
While this is a standard option for unhealthy markets, it will prove more difficult for the Denver area. Houses are selling like hot cakes, giving sellers a great deal of power during negotiations. If you are able to locate a property that has been on the market awhile, it may be possible to negotiate with the seller. They may be willing to take on certain closing costs in order to tack down a sale.
6. Close Quickly and at the End of the Month
Certain charges add up daily, while others must be paid anew at the beginning of each month. If the property remains in escrow for a long time, you also may have to pay for certain services again, such as pest inspection. Delayed transactions cost more, so work as swiftly as possible without being hasty.