Your Guide to Closing Costs in Washington

It has captivating natural beauty, a booming tech industry, and that Pacific Northwest charm – there is a lot to love about life in Washington State. But if you are a homebuyer ready to call the Evergreen State home, make sure you save up: closing costs in Washington State are some of the priciest in the country.

Closing costs encompass all the administrative and legal services you’ll need to pay before you receive the keys and title to your new home. You have got to pay your lender, home appraiser, inspector, the taxman – the list goes on! Instead of paying for each service provider separately, you pay these costs in a lump sum on closing day. And they can add up quickly, amounting to 2 to 5 percent of your home’s purchase price, paid alongside your down payment.

If you are buying property in Washington, NewHomeSource has put together the following guide to help you determine how much you should be saving for closing costs, state-specific rules, and how you can potentially lower these costs.

How Much Are Closing Costs in Washington?

Closing costs in Washington make up 2.37 percent of the sales price according to Forbes. This is higher than the national average of 1.81%. The median sales price of a single-family home in Washington is $626,100 as noted by a Washington Housing Market report. Closing costs would average $14,838. The Evergreen State’s closing costs are among the highest in the nation.

But homebuyers in Washington State should count on spending far more than these estimates, though. This data excludes two key costs: loan origination fees (if you’re applying for a mortgage) and private mortgage insurance, which you will need to buy if you have a down payment of less than 20 percent. Combined, these expenses can easily add up to thousands of dollars.

Keep in mind, closing costs will fluctuate depending on the price of your home, its location, and the complexity of the sale.

What Is Typically Included in Washington’s Closing Costs?

What exactly are you paying for in closing costs? With so many moving parts, it is easier to group closing costs into three categories: mortgage-related fees, property-related fees and annual recurring fees. Each state also has its own set of regulations you will need to follow. Here is what to expect in Washington.

Mortgage-Related Fees

Unless you are buying your new home with cash, you will need to get approved for a mortgage. These are the closing fees you will incur from your lender, along with state protocol for hiring an attorney.

Loan Origination Fees

Your lender will charge you loan origination fees for all the administrative work involved in setting up your home loan, such as the underwriting, providing preapproval letters for your house hunting, checking your credit history, and processing your funding.

Estimate loan origination fees to be about 0.5 to 1 percent of your loan amount.

Credit Report Fee

Before your lender decides you are a responsible borrower, they will need to do a full credit check, which includes pulling your credit report to have a look at how you have managed your existing debts over the past few years. Expect your lender to pass along this expense to you. If there is more than one borrower, double the cost.

Private Mortgage Insurance

If you are not providing at least a 20 percent down payment, your lender will expect you to buy private mortgage insurance, or PMI. PMI allows borrowers to qualify for a conventional loan if they can put down 5 to 19.99 percent of their mortgage.

While you are paying for the insurance, the coverage is for your lender in case of default.

PMI typically ranges from 0.25 to 2.25 percent of your loan, depending on the size of your down payment and credit score. Once you hit 20 percent equity in your home, you will not have to worry about PMI payments.

Attorney Fees

In some states it is mandatory to hire a real estate attorney when you buy a home, but Washington is not on that list.

Your real estate agent or title company may still insist that you enlist the wisdom of an attorney to help you with the legal aspects of your home purchase, though. An attorney can help draft your purchase agreement, certify deeds, and review your home insurance and title insurance policies.

Real estate attorneys will review your title abstract and verify that you have a clear title. They will also point out any red flags that you need to discuss with your seller before proceeding.

Legal fees will vary, depending on the complexity of the sale. Some attorneys bill by the hour while others may charge a retainer fee.

Escrow Fees

A title company or escrow agent can help you get to closing day without any hiccups. Your title company will act as a neutral third party, setting up an escrow account to hold your earnest money deposit, down payment, taxes, and other expenses. This way, the seller will not receive any funds until both parties meet all their conditions on the sale and the contract is finalized. Your title company will also guide you through the checklist of things you need to complete by closing.

In Washington, buyers and sellers typically split this cost right down the middle.

Property-Related Fees

Before you make the single biggest purchase of your life, you will need to hit some pivotal checkpoints to make sure your new home is a sound investment.

Title Search

A title examination involves searching historical title documents to make sure the property you’re buying is free and clear for you to own. The last thing you want is to trade your life’s savings for land that is caught up in ownership disputes, unpaid taxes, or lawsuits in progress.

Deeds, court records, and property and name indexes are examined during the search. This is a crucial step, whether you’re buying a new build or an existing home.

Title Insurance

Once the title examination is complete, you’ll also need to buy title insurance for both you and your lender, via owner’s and lender’s title insurance policies. It is one of several insurance policies, alongside homeowner’s insurance and PMI, that you’ll need to buy before your lender is willing to fund your home loan.

Title insurance covers you and your lender in case something is overlooked during the initial title search. If your ownership is questioned, the insurance will cover court courts and related fees.

In Washington, sellers typically pay for the title insurance, but this expense could fall onto your lap during negotiations. This insurance is a one-time expense that stays in effect until you sell your property.

Appraisal

Another make-or-break step in the homebuying process is the appraisal, in which your lender will send a third-party appraiser to the property to make sure the value is accurate. If you default on your mortgage and your lender forecloses, they need to know they can sell the property to recoup the cost of your loan.

To determine your potential new home’s market value, the appraiser will look at the property’s specs, its size and condition, and how it stacks up to similarly priced homes in the neighborhood.

Your lender gets to choose the appraiser but you’re responsible for the bill.

Home Inspection

For your peace of mind, hire a home inspector to check on the health and safety of your potential new property. They’ll examine everything from the foundation to the roof as well as the condition of your appliances, the plumbing, and HVAC systems.

Listen carefully to your home inspector’s feedback: They will point out any existing issues or problems that could surface in the coming years. This is important information because you can ask the seller to adjust the price to compensate for repairs you would need to make.

Real Estate Transfer Tax

The real estate transfer tax — also called a deed tax, excise tax, or stamp tax — is a typical charge each time property switches hands. Homebuyers in Washington will spend 1.10 percent on this tax for the first $525,000 of property sold. The tax rate moves up to 1.28 percent for homes valued at $500,000 to $1.525 million, according to the state’s Department of Revenue. Above this amount it can be as high as 3 percent. There is also a local REET tax that must be added for your property as well.

Annual Fees

From monthly mortgage payments to utility bills and seasonal maintenance, homeownership is an ongoing investment. Your closing costs will include a handful of fees that you will need to start paying annually.

Property Taxes

In Washington, homeowners pay, on average, 0.76 percent of their home’s assessed market value in property taxes, according to the Tax Foundation, a decades-old tax policy non-profit. The precise rate will vary depending on the taxes levied in the county you’re moving to, but overall, the state has expensive property taxes compared to the rest of the country.

Homeowner’s Insurance

Like title insurance and private mortgage insurance, homeowner’s insurance is another mandatory purchase you will need to make before your lender transfers your mortgage funds. A standard policy covers you in case something happens to your property such as fire, vandalism, or theft.

Like property taxes, this is a prepaid expense, meaning it must be paid for in full at closing and cannot be rolled into the home financing.

Homeowner’s Association Fees

Thirty-one percent of homeowners in Washington are members of a homeowner’s association, so there is a decent chance you may be responsible for this annual fee.

HOA fees cover the cost of the various amenities provided by your neighborhood, including clubhouses, community parks, and fitness centers. They can also be used to keep the community running, with trash removal, security services, and fire alarm systems.

Ask about HOA fees upfront when you are shopping for a home. This way, you will know how much you will need to budget for this cost and what it includes.

How Can I Lower My Closing Costs in Washington?

If you are wondering how you will come up with the cash to close on your home, here is a rundown of key strategies that could save you some money.

Closing Cost Assistance

Look into Washington’s homeownership assistance programs as a potential way to cut down on your closing costs.

The Washington State Housing Finance Commission (WSHFC) offers a string of programs, including the Opportunity Down payment Assistance Loan Program. It provides down payment assistance in a payment-deferred second mortgage to income-eligible first-time homebuyers. That could be a big help to apply towards your closing costs!

Several regions across the state also offer down payment and closing cost assistance programs, too, including Bellingham, King County, Kennewick, Kitsap County, and Pasco.

Focus on Your Finances

Get your finances and credit score in great shape before you head to the lender’s office to ask for a mortgage. If you can show lenders that you are a low-risk borrower, you may be able to secure a home loan with a lower interest rate, which would save you thousands of dollars over the life of your mortgage.

Do not miss any due dates on your existing loans, pay down your debts to keep your debt-to-income ratio low and do not apply for more credit before you make your case to lenders.

Save as much as you can to put toward your down payment, too. The closer you get to the 20 percent threshold, the less you’ll have to pay in PMI.

Seller Concessions

Negotiating price and compromising on who pays for what on closing costs are a routine part of the homebuying process. Do not shy away from asking the seller to pay for some — or all — of your closing costs, especially if you are in a buyer’s market. You could even submit a full price offer with a caveat that the seller pays the entire closing cost tab.

If you are purchasing a new build, talk with your builder about covering closing costs if you choose to pay a premium for certain upgrades. In other words, there are many different strategies you can use to ask the seller to share closing costs.

Adding Closing Costs to Your Home Financing

If you cannot come up with the cash for closing costs, you may opt to roll this expense into your home loan. This way, you do not have to pay these costs on closing day, but the total will be added to your monthly mortgage payments.

While this is a convenient alternative to paying for closing costs upfront, you will end up paying interest on your closing costs across the life of your loan.

No-Closing-Cost Mortgages

Another solution you may be able to pitch to your lender is a “no-closing-cost” mortgage. In this scenario, your lender agrees to pay for part — or all — of your closing costs. In turn, you pay a higher interest rate on your mortgage.

Run some calculations before you decide if this is the best route to take. In the long run, this option could cost you more money because of the bump in your interest rate.