When preparing to buy or sell a property in Colorado, your down payment or asking price is not the only cost to consider. You will also need to account for closing costs, which are the fees and expenses required to complete a real estate transaction. Understanding how much closing costs typically are in Colorado, what factors affect them, and how to manage them can help you save thousands of dollars. Read on to learn more about closing costs in Colorado.
What Are Closing Costs?
Closing costs include all expenses that are not part of the actual purchase price but are necessary to complete the purchase of a home. These include costs associated with the professionals involved in the closing process, such as lenders who underwrite the loan, the title company that ensures the title is clear, appraisers who determine the property’s value, and local government agencies that record the deed.
Average Closing Costs in Colorado
The amount that must be paid as CLWC for your property is based on the total price of your home (the total of your contract) at closing. This includes any settlement charges or closing cost items that you are required to pay at the time of closing.
Closing costs can vary from state to state depending on the purchase price of the property and the type of financing used.
Closing costs vary by location, which also affects the CLWC amount. One source notes that across the 50 U.S. states, approximately 85% of all properties (in 2019) had an average CLWC of 1.85% of the purchase price, or $3,451.71. Another source reports that the U.S. average CLWC is approximately $5,641.68 per sale. In Colorado, the average closing costs were $3,686 in November 2020, ranging from $2,000 to over $6,000.
Sellers typically pay more than buyers in closing costs, especially due to real estate commissions. In Colorado, seller-related closing costs, including commissions, usually range between 6% and 10% of the sales price, while real estate commission fees alone average about 5.7%.
What’s Included in Colorado Closing Costs
Fees charged by lenders
- Loan Origination Fee – Typically ranges from 0.5% to 1% of the loan amount. This fee is sometimes negotiable depending on the lender and loan terms.
- Underwriting Fee – Ranges from $400 to $900. It covers the cost of evaluating and underwriting your loan application.
- Processing Fee – Usually between $300 and $600. This fee covers the processing of your loan documents.
- Appraisal Fee – Covers the cost of an independent professional who determines the estimated value of the home for the lender.
- Credit Report Fee – Typically $30 to $50. This fee allows the lender to access your credit report.
- Discount Points (optional) – Each point costs 1% of the loan amount and is used to lower the interest rate on the mortgage.
Title and Closing Costs
- Title Insurance, Lender’s – Protects the lender’s interest in the property; this is a mandatory requirement from the lender.
- Title Insurance, Owner’s – A one-time cost, typically ranging between $500 and $1,500. It protects the owner’s interest in the property for as long as they own it. In Colorado, it is common practice for the seller to cover this cost, although it is negotiable.
- Closing/Settlement Fee – Paid to the title company or attorney handling the closing of the transaction. In Colorado, real estate transactions are typically closed by either title companies or real estate attorneys.
Government and Recording Fees
- Recording Fee – Paid to the county to record the deed and make it part of the official public record.
- Colorado Documentary Fee – A transfer tax paid to the state when purchasing property. It is calculated at 2 cents per $100 of property value.
- Proration of Property Taxes – Buyers typically pay their prorated share of annual property taxes at closing.
Prepaid Expenses
- Homeowners insurance prepaid, which may be one-year’s premium paid up front.
- Interest that is prepaid for the time between the closing and your first mortgage payment.
- Escrow deposit paid for taxes and insurance at closing, if you have to keep escrow funds.
Who Pays What in Colorado?
Colorado has fairly standard practices regarding who pays for what in the closing process, although everything is negotiable in the sales agreement. Typically, buyers pay all lender-related fees, the lender’s title insurance policy, the appraisal fee, and inspection costs, as well as prepaid insurance and escrow deposits. Sellers normally pay the real estate commissions for both the listing and selling brokers, the owner’s title insurance policy, and a portion of the property taxes.
Important Factors That Affect Your Closing Costs
Several factors can lead to your Colorado closing costs falling toward either the upper or lower end of the common range:
- House value and loan size – a lot of the fees are figured based on the house purchase price or mortgage.
- Locality – recording fees, local transfer practices, and property taxes vary from one Colorado location to another.
- Type of loan – each loan, such as conventional, FHA, VA, or jumbo, carries a specific set of fees.
- Originating lender – there is a great deal of variation between lenders regarding origination fees and underwriting fees.
- Closing date – a closure in the early part of the month often results in extra prepaid interest at closing time.
- Seller and lender credits – contributions that may offset your liability.
What are the Ways to Reduce Your Closing Costs?
- Get loan estimates from at least three different lenders, as origination and underwriting fees can vary significantly.
- Negotiate seller contributions, especially when buying in a seller’s market where sellers may agree to cover part of your closing costs.
- Request a lender credit in exchange for a slightly higher interest rate if you plan to keep the mortgage for only a short period.
- Review your Closing Disclosure and compare it with your initial Loan Estimate at least three business days before closing.
- Explore Colorado-specific programs for first-time homebuyers, such as CHFA assistance for down payment and closing costs.
- Carefully plan your closing date, as timing can help reduce the amount of prepaid interest.
Plan Your Journey With Reliance Financial
There should be no surprises when it comes to closing costs if you are properly prepared. With the right guidance, you can plan, compare estimates, and potentially reduce your overall closing expenses.
At Reliance Financial, we guide both buyers and sellers in Colorado, so they have a clear understanding of all costs involved in the transaction, helping to ensure a smooth closing process with no surprises. If you are a first-time buyer trying to determine how much cash you will need at closing, or a seller looking to understand your net proceeds, feel free to contact Reliance Financial.
Conclusion
There is nothing a Colorado homebuyer or seller can do to avoid closing costs, but there are steps you can take to ensure you are not caught off guard. As a buyer, it is important to budget approximately 2% to 5% of the purchase price for closing costs. Sellers should also be prepared for higher expenses due to seller closing costs, which typically include real estate commissions. The most important step is preparation. Shop around with different lenders, carefully review your Closing Disclosure, and check whether any seller or lender concessions are available.
FAQs
What is the typical cost of closing costs in Colorado?
On average, Colorado home buyers will pay between 2% and 5% of the cost of the home as closing costs. For a home worth $500,000, that would be between $10,000 and $25,000, depending on the type of loan and lender used.
Are closing costs paid by the buyer or the seller?
Closing costs are paid by both the buyer and the seller. However, the costs are divided into those that are paid by the buyer and those that are paid by the seller.
Are closing costs negotiable?
Yes, origination fees, seller contributions, and lender credits are all negotiable. It is important to get several Loan Estimate forms and ask for seller contributions to lower your total costs.
Are closing costs the same as the down payment?
Not really; closing costs are additional costs for things other than equity that will go toward the cost of purchasing the home.
Are there any programs offering closing cost assistance in Colorado?
Yes, there are some programs such as CHFA that can provide closing cost assistance and down payment assistance for qualifying first-time buyers in Colorado.
What is the way to know how much my closing costs are?
After application, an estimated cost will be provided in the loan estimate, and the exact amount will be provided on the Closing Disclosure within 3 business days before closing.
