Closing Costs

What are closing costs?

Closing costs involved in purchasing  a home. They include your down payment, loan points (if applicable), title insurance, escrow or closing day charges, document fees, prepaid interest and property taxes. Unless, these charges are rolled into the loan, they must be paid when the home is closed.

How much are closing costs?

Typically, home buyers will pay between about 2 and 5 % of the purchase price of their home in closing costs. So, if your home cost $100,000, you might pay between $2,000 and $5,000 in closing costs.

What makes up closing costs?

Closing costs vary widely but closing costs often include things such as:

  • A fee for running your credit report.
  • A loan origination fee, which lenders charge for processing the loan paperwork for you.
  • Attorney’s fees.
  • Discount points, which are fees you pay in exchange for a lower interest rate.
  • Appraisal fee.
  • Survey fee, which covers the cost of verifying property lines.
  • Title insurance, which protects the lender in case the title isn’t clean.
  • Title search fees, which pay for a background check on the title to make sure there aren’t things such as unpaid mortgages or tax liens on the property.
  • Escrow deposit, which may pay for a couple months’ property taxes and private mortgage insurance.
  • Pest inspection fee.
  • Recording fee, which is paid to a city or county in exchange for recording the new land records.
  • Underwriting fee, which covers the cost of evaluating a mortgage loan application.

How can I reduce my closing costs?

Most buyers are not aware of these extra fees and these fees can add up quickly. But there are some ways to save:

  • Negotiate with the seller to pay all or part of the closing costs. The lender must agree to this as well as the seller.
  • Get a no-point loan. The trade-off is a higher interest rate on the loan and many of these loans have prepayment penalties. But buyers who are short on cash and can qualify for a higher interest rate may find a no-point loan will significantly cut their closing costs.
  • Get seller financing. This kind of arrangement usually does not entail traditional loan fees or charges.
  • Shop around for the best loan deal. Each direct lender and each mortgage brokerage has their own fee structure. Call around before submitting your final loan application.

Who pays the closing costs?

Closing costs are either paid by the home seller or home buyer. In a seller’s market it is difficult to get the seller to pay part of the buyer’s closing costs.

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