What are Closing Costs

After saving for a down payment, house hunting and applying for a mortgage, closing cost can often be overlooked. Understanding closing costs and budgeting for them can smooth out the closing process.

Closing costs include a variety of fees for services and expenses required to finalize a mortgage transaction. You’ll pay closing costs whether you’re buying or refinancing.

Most closing costs are the buyer’s responsibility, but the seller typically pays some as well, such as real estate agent’s commission.

Average closing costs for a buyer run between 2% and 5% of the loan amount. In a purchase transaction these will likely be paid out-of-pocket. There are certain loan programs that will allow some of these expenses or all of them to be folded into the loan, but you’ll pay interest on those costs.

You can shop and negotiate some of the fees to lower you costs. And some states, counties and cities offer low-interest loan programs or grants to help first time home buyers with closing costs. Check with your local government to see what’s available.

Your lender will provide you with a Loan Estimate that will detail the estimated closing costs, and a Closing Disclosure with more accurate figures closer to closing time.

Property-related Fees:

Appraisal Fee - $300 - $500
Home Inspection - $300 -$500

Loan-related Fees:

Application Fee – covers processing a new loan request
Prepaid Interest – interest accrues on the mortgage between the date of settlement and first monthly payment is due.
Loan Origination Fee – charge by the lender for evaluating and preparing your mortgage loan
Discount Point – paying discount points, you reduce the interest rate you pay over the life of the loan.

Mortgage Insurance Fees

Property Taxes, Annual Fees, and Insurance

Title Fees – for lender’s title insurance and owners title insurance