When you sit down to sign the papers to buy a home, you will most likely be required to pay closing costs. Mortgage closing costs are the fees associated with the home buying and lending process.
What is included in my closing costs?
The types of closing cost fees can vary based on region, property type, and loan type. There are a few basics that most everyone has to pay.
- Lender origination fee
- Underwriting fees
- Appraisal fee
- Settlement fee
- Title Insurance, title search and other title related fees
- Lender escrows for property tax and insurances
- County recording fees for mortgage an/or deed
- Tax certifications
How much will I pay?
Closing costs can range from 2% to 5% of the home purchase price. On a $150,000 house, this would be between $3,000 and %7,500. Some of the closing costs can be negotiated. Within three business days after you have turned in your mortgage application, your lender should provide you with a Loan Estimate. This will include a list of expected closing costs and their total amount. The exact amount can change during the loan process, as this is only an estimate. Then, at least three business days before closing, your lender will give you a Closing Disclosure statement. The final closing cost total should be stated. You can then compare the end total to the original estimate and ask your lender about any dramatic changes.
Do I have to pay closing costs?
In some cases it is possible to ask the seller to pay for all the closing costs. When the housing market is hot, however, this is not going to be an option. There are also some lenders who will allow you to skip closing costs. The downside to this arrangement is that in order to compensate for that lack of upfront cash, they will charge you a higher interest rate on your mortgage or roll the closing costs into the loan total. In both cases, you can end up paying more over the long run.
Understanding the nature of closing costs and having a rough idea of their final amount can help you be prepared for a smooth mortgage closing.