The sale price of your house is just the initial outlay when you decide to purchase one. Closing fees are associated with every transaction, regardless of whether you buy with cash or a mortgage.

Closing costs refer to a range of expenses associated with the sale of a home. They vary according to the type of transaction, your state, and the market value of your home.   

For cash buyers, it's critical to estimate your closing costs with precision. Cash buyers must cover these costs at or before the closing appointment, although buyers with loans can frequently factor these costs into their mortgages. You don't want an unforeseen expense to take you off guard. 

In this post, you will learn how to calculate closing expenses when making a cash payment. It covers all the different expenses you should anticipate and their inclusions, so if you're interested in knowing what to consider when keeping tabs on your closing expenses, just keep on reading.

Parts Of Closing Costs When Paying Cash

Although closing costs are sometimes referred to as a single item, they are composed of multiple parts. Here is a breakdown of common closing fees and what you should expect to pay for each.

Title Insurance And Title Search

Anyone acquiring a home is required to conduct a title search. The title company will check the property for liens and other issues that could jeopardize the transaction. For instance, for the sale to proceed, the seller would have to settle any unpaid balances on the contractor's invoice in the event of a lien from a previous contractor. Along with looking for liens on the property, such as a former spouse who doesn't want the house sold, the title search also looks for other problems.

The title company will obtain title insurance for the house following the title search. This protects against title fraud and other future problems for the new owner. In a cash transaction, title insurance is an optional extra, but it's also a little one-time cost that keeps you safe for the duration that you own the house. Get in touch with the title company if you have any queries about acquiring this insurance.

Depending on where you live, you should budget between $75 and $200 for a title search when anticipating closing costs. Title insurance typically costs 0.5% to 1% of the house's sale price.

Escrow Charges

When money associated with a real estate transaction is held in escrow, it is done by an independent third party. To hold the earnest money deposit, a title company normally opens an escrow account at the beginning of a transaction. The title firm will place the house in escrow until both parties have signed the closing documents after you pay them for the property.

This function is crucial during the purchasing process, even though you might not require an escrow account once the transaction is finished. It protects your funds and facilitates a smoother exit from the transaction if needed. 

When calculating closing costs, escrow fees are expected to be 1% to 2% of the home's sale price.

At the closing table, property taxes are often paid by both purchasers and sellers. They only pay taxes during the time they possess the property because they individually pay prorated amounts. Property taxes are paid by the seller for the tax year in which they were the owner; the buyer is responsible for the remaining amount.

For instance, the seller only has to pay taxes for four months if the tax year ends on April 30 and the seller closes on January 1. The buyer bears the tax liability for the final eight months of that particular year. 

Since sellers must know when the tax year starts and how much they will be expected to pay in property taxes, this is one of the most difficult closing fees to predict. By obtaining this data, they can better prepare to go over their concluding remarks. 

On the other hand, the average American pays property taxes equal to 1% of the value of their home annually. This can act as basic guidance until you have precise property-specific tax information.

Homeowners Association (HOA) Fees

These expenditures may need to be included in your closing costs if you are purchasing a home with a homeowners association. Similar to how property taxes are handled, HOA fees are often paid for by both purchasers and sellers pro rata, depending on when the house is sold. While the seller was residing in the home, they were accountable for paying their share of the fees; after that, the buyer assumed responsibility for paying the fees. 

You might have to pay a portion of your HOA dues up in advance at closing as a buyer. While some HOAs accept monthly payments, others have one-time fees that must be paid when you move into the neighborhood.

The average homeowner will pay $191 in monthly HOA dues as of 2021, or about $2,292 annually. Before making an offer on a house, find out about HOA dues so that you fully understand your monthly expenses.

Insurance For Homeowners

At closing, you may also be required to pay the premium for your homeowner's insurance. Both cash purchasers and buyers who apply for mortgages frequently experience this. You can immediately start protecting your house after paying the entire cost of your insurance.

This insurance expense is typically distributed among mortgage holders through monthly installments included in their loans. Cash buyers can arrange with their insurance companies to get monthly bills for their coverage or to obtain lump sum payments that are sent annually or semi-annually. 

Annual premiums for homeowners insurance range greatly depending on the state, kind of property, and location of the residence; the average premium is $2,377.

Legal Fees

Your closing costs will include a line item for real estate attorney fees. While some states mandate using a real estate attorney when buying or selling a house, others only advise doing so. An attorney may be hired by your real estate agent or title firm to ensure that all of the paperwork is accurate and enforceable. 

Attorney costs differ by state and type of legal practitioner. A closing should cost you between $500 and $1,500. Unlike the hourly cost attorneys charge for particular real estate services, this is typically a flat fee.

Recording Charges

The government charges a recording fee to keep records of any changes in property ownership within the county. Although they could differ by state, these government fees typically cost about $125. Whether purchasing with cash or a mortgage, this is a one-time expense that the buyer is responsible for.

Inspection Charges

You will have to pay the home inspector's costs before the house closes if you hire them to inspect the property before making the purchase. While some house inspectors require payment before or right away after services are provided, others will let you pay them after closing. 

These invoices may include the cost of your scheduled additional inspections in addition to the standard home inspection. You will be responsible for these expenses, for instance, if you ask for additional inspections of the electrical wiring, chimney, pool, or foundation. 

Depending on your location and the size of the house, a home inspection might cost anywhere from $300 to $600 on average. In certain parts of the nation, these expenses might be more. 

Assessment Charges

An appraisal creates a reasonable sale price and tracks the property's value, whereas an inspection determines the house's condition. Although they aren't typically required for buyers with cash, appraisals are essential for those who need mortgages. Having said that, certain sellers may still want appraisals, or some deals may need them for valuation purposes.

This bill will be added to your closing fees if you order an appraisal. The cost of your home appraisal will vary based on your location and the size of the house, from $700 to $1,00. 

How Much Closing Cost Do You Need If You Pay Cash

You should never be surprised by your closing costs. A good deal before you get to the title business to sign this paperwork, your real estate agent should take you through every charge as it happens and give you an idea of how much closing will cost. You should be able to get example closing documents depending on your target communities and budget even before you begin your house hunt.

Read (And Understand) The Purchase Agreement

Reading the purchase agreement is the first step toward obtaining an accurate estimate of your closing costs. This displays far more information than just the sale price and closing date. It also specifies which party will pay for particular costs associated with the selling of the house.

Look for any discounts on property taxes, HOA dues, and other expenses that the seller has agreed to offer. Rather than haggling over a reduced sale price, they may have agreed to pay a larger portion of the closing costs, which would have eased your financial load. Some sellers will shoulder a bigger share of the closing costs in a buyer's market to close a deal. 

You can determine which charges to include in your calculations for closing costs and which ones to exclude by reading the purchase agreement.

Request For An Estimate Of The Closing Costs

You will begin collaborating with the title business closer to the closing date. To prevent wire fraud and guarantee that everything goes according to plan, they will offer comprehensive instructions. As soon as the representative of your title business gets in touch with you, ask them for an estimate of your closing fees. Many will offer this document to buyers in advance as a courtesy.

After closing, the title firm is typically in charge of allocating funds and making sure that all fees, insurance premiums, and bills are paid. This is the reason why all parties involved have come to an understanding that they need to be able to reliably offer you an estimate for your closing charges.

Talk To A Real Estate Agent or An Attorney

Your real estate agent is the next best person to talk to. They are trained and experienced to take you through the process of paying closing charges and explain which fees are included in the total cost. For example, you do not have to estimate the appraisal fee if you do not need one.

Real estate agents read closing documents every day, so they should be able to help you grasp the estimate the title company offers. They can also create an estimate that shows you what the prices will be like. 

Your real estate attorney is one last resource. They can prepare an estimate of the closing costs for your inspection. It is important to clarify that although the paper lists typical closing costs, it is not legally enforceable. By the official closing date, the estimations may have changed.  

Apply The Three Percent Rule

Use the 3% Rule to get an estimate of your closing expenses without having to write out every fee associated with buying a house. After all taxes and fees are deducted, closing expenses for cash buyers might amount to up to three percent of the purchase price of the property. You may spend as little as 1% of the home's worth, but the 3% Rule provides a sizeable safety net in case unforeseen costs arise.

According to this formula, $12,000 would be the closing expenses for a cash purchase of a $400,000 home. On the lower end, based on your state and the expenses incurred, you might just have to pay about $4,000. 

Using the 3% guideline has the advantage of allowing you to rapidly obtain an estimate of closing expenses for any property you inspect. If you are unsure of how much you want to spend and have a broad budget, this offers a helpful choice. Its extreme accuracy is its drawback. Your estimate could be incorrect by hundreds of dollars because you aren’t breaking out each cost. 

Utilizing this approach to obtain a general idea of closing expenses and then collaborating with your real estate agent to get a more precise figure is a reasonable middle ground. 

Calculate The Total Closing Costs

Using the details on this page, you can manually calculate closing expenses as well. If you are just beginning your house search and are unsure of how much you should set aside for closing expenses, this is a smart alternative.

If your agent cannot offer a sample paperwork or if you do not receive a closing estimate from the title firm, working through these numbers manually may also be helpful. 

This closing cost estimate is based on a 2024 house sale for $500,000. 

Choose The Right Realtor

Closing fees are a part of every home purchase and should be factored into the buyer's budget. There will be closing charges associated with the numerous taxes and levies that made the transaction feasible, even if you are a cash buyer.

Being familiar with these closing fees in advance will enable you to arrange the appropriate funds for the title firm and help you establish a fair budget for your home purchase. 

Hiring a reliable realtor is one of the best methods to guarantee a seamless real estate transaction. These experts can assist you in overcoming obstacles associated with the sale and clarify any confusing words relevant to your closing documents. One of your greatest resources when purchasing a home is your real estate agent. 

And speaking of real estate agents, if you're looking for a trusted real estate broker in Indiana, our team at RE/MAX Advanced Realty is here to help!

Our realtors are trained and experienced in helping home buyers who want to pay cash. We will guide you throughout the process, including explaining and providing an estimate of your closing fees. Leave a comment below or visit our website for more details.