Closing Costs Explained

Closing costs are the expenses that the lender accumulates from the origination of your new home loan. Some of these costs may be related to your loan application, while other fees are related to the house itself.

Unless the lender offers to pay them for you, these expenses are charged to the buyer and often cost between 3 and 6 percent of the amount being borrowed. Because different states require different taxes and fees to be included, it is impossible to come up with a generalization that applies to loans nationwide.

Typical closing costs include loan application fees and credit report, title search and insurance fees, property appraisal, lender’s attorney fees, inspections, survey, recording fees, transfer taxes, buyer’s attorney, document stamps, points and origination fees, and more. Escrow accounts are often required for many loans for homeowners insurance, real estate taxes, and homeowners associations and require cash deposits at closing.

After your initial meeting with a mortgage professional, you should receive a Good Faith Estimate (GFE) that shows all of the closing costs associated with your mortgage application. This estimate is required by The Real Estate Settlement Procedures Act and must be given to you within 3 days of applying for the loan.

You may be able to negotiate some of the fees included in your closing costs. Things like credit reports typically cost the same with every mortgage program. However, if you see that your preferred lender seems is offering a great deal but is over-charging on closing costs, point out the discrepancies and ask them to lower certain charges. Keep in mind, most third party fees have been previously negotiated between the mortgage company and the third party, and may not be able to be reduced. Also, watch out for “junk fees” that are included with most mortgage programs. Once you identify a junk fee, try to negotiate it down or eliminate it entirely before accepting the loan.