How Much Are Closing Costs in Washington?

When engaging in a real estate transaction, understanding the various financial obligations beyond the property’s purchase price is important. These additional expenses, known as closing costs, encompass a range of fees and charges that finalize the home sale or purchase. They represent a significant financial aspect of the transaction, separate from the down payment itself.

Understanding Closing Costs

Closing costs represent the collective fees and expenses incurred at the culmination of a real estate transaction. These charges are distinct from the down payment or the primary purchase price of the property. Their purpose is to cover the various services and administrative tasks required to transfer property ownership legally and complete the financing process. These services include activities such as loan origination, property appraisal, title transfer, and the preparation of legal documents.

Common Closing Cost Categories in Washington

The total amount of closing costs in Washington State can vary significantly, ranging from 2% to 5% of the loan amount or purchase price. These costs are categorized based on the services they cover, including lender fees, title and escrow charges, government fees, and prepaid items. Understanding each category helps clarify the financial commitments involved in a real estate transaction.

Lender fees are charges from the financial institution providing the mortgage loan. A loan origination fee, ranging from 0.5% to 1.5% of the total loan amount, covers the lender’s administrative costs for processing the loan. Appraisal fees, between $500 and $800, compensate a professional for assessing the property’s market value. A credit report fee, between $30 and $70, covers the cost of obtaining the borrower’s credit history.

Title and escrow fees ensure clear property ownership and manage transaction funds. A title search fee, between $100 and $250, verifies the property’s title is free of liens or disputes. Lender’s title insurance, 0.2% to 0.5% of the loan amount, protects the lender if title issues arise after closing. Owner’s title insurance, which protects the buyer, is also available.

Escrow fees cover the costs of managing all funds and documents during the transaction, ranging from 0.5% to 1% of the purchase price or a flat fee between $1,000 and $2,000. Recording fees, $50 to $200, pay for officially registering the new deed and mortgage with the county. These fees ensure the legal transfer of property ownership is properly documented.

Government fees include taxes and charges levied by state and local authorities. Washington State imposes a Real Estate Excise Tax (REET), which is a progressive tax on the sale price of real property. For sales under $525,000, the rate is 1.1%, while properties exceeding $3,000,000 are taxed at a rate of 3%. This tax is a substantial component of closing costs in Washington.

Prepaid items are expenses paid in advance at closing that are not fees for services. These include prorated property taxes, covering the portion of taxes due from the closing date to the end of the tax period, from two to six months of payments. The first year’s homeowner’s insurance premium is also paid upfront to ensure the property is immediately covered. Prorated interest covers the mortgage interest from the closing date through the end of the current month.

Other potential costs may arise depending on the transaction. Attorney fees can range from $500 to $1,500. Survey fees, between $500 and $1,000, may be necessary to verify property boundaries. Homeowners Association (HOA) fees are also prorated at closing.

Buyer and Seller Responsibilities

The allocation of closing costs between the buyer and seller in Washington State is determined by local customs and the purchase agreement. Buyers bear most lender-related expenses, such as loan origination fees, appraisal fees, and credit report charges. They also pay for their portion of escrow fees and prepaid items like homeowner’s insurance and prorated property taxes.

Sellers are responsible for the Real Estate Excise Tax (REET) in Washington, a state-mandated expense based on the sale price. Sellers also cover real estate agent commissions for both the buyer’s and seller’s agents. The cost of owner’s title insurance and a portion of the escrow fees can be negotiated between both parties.

Variables Affecting Your Total Costs

Several factors can cause the total amount of closing costs to fluctuate. The home’s purchase price directly influences many fees, as charges like the Real Estate Excise Tax and some title and escrow fees are calculated as a percentage of the sale price. The type and amount of the loan also play a role, with different loan programs having varying fee structures.

The specific lender chosen impacts costs, as each financial institution has its own fee schedule for services like loan origination and underwriting. Geographic location within Washington can lead to variations due to differing local taxes or recording fees. The final negotiated terms between the buyer and seller regarding cost allocation can alter each party’s financial outlay.

Receiving Your Official Closing Cost Estimates

Homebuyers receive official estimates of their closing costs through standardized documents. The Loan Estimate (LE) is a document provided by the lender within three business days of submitting a loan application. This estimate details the projected closing costs, interest rate, and estimated monthly payments, allowing borrowers to compare offers from different lenders.

Later, at least three business days before the scheduled closing date, borrowers receive the Closing Disclosure (CD). This document provides the final, actual closing costs and other transaction details, allowing comparison against the initial Loan Estimate. For sellers, the escrow company provides a Seller’s Closing Statement, outlining their specific costs, credits, and net proceeds from the sale.