What are closing costs?

Closing costs refer to the fees and expenses that are associated with the purchase and financing of a home, which must be settled at the closing of the real estate transaction. These costs encompass a variety of expenses, including lender fees, title insurance, appraisal fees, and recording fees, among others. They are typically calculated as a percentage of the home purchase price and can range from 2% to 5% of that price.

The importance of understanding closing costs lies in their role in the real estate transaction process. Buyers typically need to budget for these costs in addition to the down payment, as they are paid directly at the closing table, where ownership of the property is transferred. This encompasses the final financial arrangements necessary to complete the sale, including various fees that ensure all legal and financial obligations related to the property transfer are fulfilled.

The other options describe elements that relate to the home transaction or maintenance but do not encompass the broad range of fees and expenses paid at the closing. Property inspections and insurance are important in the process but fall outside the scope of closing costs, which are specifically tied to finalizing the purchase. Monthly mortgage payments represent ongoing financial obligations after closing, while annual home insurance fees are a recurring expense that does not pertain directly to closing costs