Closing costs are the fees to complete a real estate transaction.
What are closing costs?
Closing costs are the lender and third-party fees that are incurred in addition to the purchase price of the property. These costs are charged when the property title is transferred from the seller to the buyer, or during closing.
The seller or buyer can pay the closing costs. It is possible to roll your closing costs into your loan or to pay the lump sum on closing day. Lenders are required by law to provide an estimate of these costs in a Loan Estimate form within three days of a mortgage application. Additionally, you will receive a closing disclosure that finalizes these costs three days before you close.
What is included in it?
It varies by lender and are widely based on the type of loan and property you purchase. Closing costs likely include, but are not limited to, the following fees:
Loan Origination
Under the umbrella category of origination charges, the lender will probably first charge a loan origination fee. This fee is for the lender’s administrative costs. Second, your lender may charge an application or processing fee. Finally, your lender may add an underwriting fee. This covers the cost of researching whether or not you qualify for this loan.
Appraisal
This fee is usually paid to a third-party to appraise the home and confirm its market value.
Survey
This is another third-party bill that goes to a survey company who verified your property lines.
Attorney Fee
As indicated by its name, this charge is to pay an attorney to review the closing documents.
Credit Report
This fee is for pulling your credit report during the loan approval process.
Closing Fee or Escrow Fee
In many cases, a title company or an escrow account is used to oversee the home purchase. It acts as an independent third-party during closing. Some states require a real estate attorney to facilitate the closing. Their fee should be included in your closing costs.
Escrow Deposit for Property Taxes and Mortgage Insurance
While this is not an extra charge, lenders often require at least two months of property tax and mortgage insurance payments to be held in escrow at closing. These funds are held until the amount is due.
Homeowners Insurance
The annual premium for your homeowners’ insurance is usually paid at closing.
Discount Points
If you are purchasing discount points to lower your interest rate, this amount is due at closing.
Prepaid Interest
Most lenders will require you to prepay any interest that your loan will incur between closing and your first mortgage payment.
How much is it?
In general, these are usually about two to five percent of the home’s purchase price. However, the fees vary by lender. As a result, it is always recommended to shop around and get a Loan Estimate from different lenders.
For example, if the purchase price of a home is $300,000, the closing costs could range from $6,000 to $12,000.
