Recurring and Non-Recurring Closing Costs Explained

What to Expect When Buying a Home

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In a real estate transaction, any money you pay to complete the deal, sums over and above the purchase price, comes under the umbrella of "closing costs." The closing point is when the title of the property is transferred from the seller to the buyer. Either party can incur closing costs. 

For a seller, closing costs are all the fees, except liens or encumbrances, that are deducted from the purchase price.

For a buyer, the total dollar amount of closing costs depends on where the property is being sold and the value of the property being transferred. Home buyers typically pay between 2 percent to 5 percent of the purchase price. So, if your home costs $200,000, you might pay between $4,000 and $10,000 in closing costs.

Two Types of Closing Costs: Recurring and Non-Recurring

Fees that lenders consider "recurring" are those that are paid annually such as property taxes or property insurance. Non-recurring fees are those that are paid once.

While closing costs are a consideration in almost all real estate transactions, for this article we will focus on a home purchase for illustrative purposes.

Examples of Non-Recurring Closing Costs for Buyers

Typically, your real estate attorney will give you an estimate of closing costs when the contract is being prepared.

Lenders are required by law to provide you with a detailed Loan Estimate within three days of receiving your loan application, which will cover their expected closing costs. Remember, both these are estimates and the actual fees may change. At least three days before the closing, the lender must provide a Closing Disclosure statement, which will have the actual and final fees that are due. If there is a variance from the estimate, the lender should explain why. Some may be negotiable, such as administrative, mailing or courier costs.

Closing costs may vary based on the property you're buying and its location. Fees range from those paid to the title company, escrow or lawyers; documentary transfer taxes; city/county transfer or property taxes; credit reports; appraisal; recording or notary fees; real estate commissions; inspections; loan fees such as points and prepaid interest.

Here's a list of potential closing costs associated with a home purchase:

  • Credit report fee.
  • Loan origination fee, which lenders charge for processing the loan paperwork for you.
  • Attorney’s fees.
  • Home inspection fees.
  • Discount points (fees you pay in exchange for a lower interest rate).
  • Appraisal fee.
  • Survey fee (to verify property lines).
  • Title insurance (to protect the lender).
  • Title search fees.
  • Escrow deposit (property taxes and homeowners insurance).
  • Pest inspection fee.
  • Recording fee.
  • Underwriting fee.

No-Closing-Cost Mortgages

A no-closing-cost mortgage is just that — no upfront fees and no closing costs on the mortgage. However, lenders who offer no-closing-cost mortgages may charge a higher interest rate on the loan or roll the closing costs into the total mortgage owed. In either case, you may wind up paying more in the long run. For instance, if the closing costs are added into the mortgage, you'll be paying interest on them.

At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.