Whether you're a first-time homebuyer or an experienced homeowner, closing costs are an important part of buying a home. Typically, these costs represent 2% to 7% of the purchase price of a home, for example, closing costs can range from $5,000 to $17,500 for a $250,000 home.

So, what exactly are closing costs? Who pays them? And how can you minimize this expense? Here's what you need to know.

Who pays closing costs?

Closing costs are shared between the buyer and the seller, but are mostly the responsibility of the buyer.

Buyer's Fees: 3% to 4% of the price of the home, including mortgage-related fees such as loan processing fees, appraisal fees, and title insurance.

Seller's Fees: 1% to 3% of the price of the home, usually including realtor's commission and title closing costs.

Most fees are paid in one lump sum at closing, but some, such as home inspection fees, may need to be paid in advance.

Major Fees for Buyers

The following are specific items that buyers typically pay:

Loan origination fee: used for loan processing and paperwork.

Credit report fee: used by lenders to evaluate credit scores.

Property Appraisal Fee: to ensure that the value of the property matches the loan amount.

Home inspection fee: to check for potential problems with the home, such as a leaky roof or cracked foundation.

Title Search and Insurance Fees: Used to ensure that there are no liens on the property and that title insurance protects the buyer's rights.

Stamp Duty: A tax levied on home loan funds.

Private Mortgage Insurance (PMI): Additional insurance costs when the down payment is less than 20% of the home's price.

Discount Point Fee: Paid to the lender in exchange for a lower interest rate on the loan.

Also included are one-time expenses such as attorney's fees, deed recording fees and escrow fees.

How can I reduce closing costs?

Negotiate with the seller: Trying to get the seller to cover some of the costs is especially advantageous in a buyer's market.

Shop around: When choosing a lender and service provider, compare the fees charged by different organizations.

Understand discount points: Decide whether to purchase discount points to lower your monthly payment based on your long-term plan.

Take advantage of buyer incentive programs: Some governments or developers may offer subsidies or fee waivers for home purchases.

Closing costs are a necessary part of the home-buying process, but they can be effectively minimized by being well-informed and planning appropriately. Whether you are a first-time home buyer or a repeat investor, having this knowledge will help you close the deal more smoothly and realize your dream of buying a home.