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What do closing costs cover when you buy a home?

by | Aug 16, 2023 | Real Estate Law

Buying a home in Rhode Island involves a significant financial commitment, and understanding all the costs is essential. Closing costs are one of the more complicated aspects of purchasing a home. These costs encompass various fees and expenses paid at the closing of the real estate transaction.

Closing costs can feel overwhelming, but breaking them into categories can make them more manageable.

Mortgage-related fees

When you secure a mortgage to buy a home, you will have multiple associated fees. The lender charges a loan origination fee, which is a percentage of the total loan amount, to cover the cost of processing the loan. You’ll pay an appraisal fee for the lender to have an independent assessment of the home’s value, and you’ll cover the cost of checking your creditworthiness with a credit report fee.

Title-related fees

Ownership verification of the property is important, and title-related fees play an essential role in this process. A title search involves an examination of public records to confirm the property’s legal ownership. You’ll also purchase title insurance to protect yourself and the lender if any ownership disputes arise after closing.

Government fees and taxes

Various government-related fees and taxes apply to your real estate transaction. Recording fees, which you’ll pay, cover the official recording of the change of ownership with the local government. Depending on when the transaction occurs, you may need to pay a part of the property taxes for the year at closing.

Additional fees

Several other fees might become part of your closing costs. If you have a home inspection, you’ll pay a fee to cover the evaluation of the property’s condition. You’ll pay a survey fee if you need a survey of the property’s boundaries. You might also put down an escrow deposit, a down payment for future property taxes and homeowner’s insurance.

Closing costs finalize the home-buying transaction, and knowing what to expect with them allows you to budget properly and approach the purchase of your new home with clarity and confidence.