Buying a home is a major financial commitment, and one of the most important steps in the home buying process is the closing. At the closing, you will need to pay a number of fees and expenses known as closing costs. Closing costs can vary depending on the lender, the location of the property, and the type of loan. In this blog, we will explore what mortgage closing costs are and what you can expect to pay.
What are mortgage closing costs?
Mortgage closing costs are the fees and expenses you pay when you close on a home loan. These costs typically include appraisal fees, title fees, lender fees, and other charges associated with the mortgage process. Closing costs can vary depending on the lender and location of the property, and they can add up to thousands of dollars.
What do closing costs include?
Closing costs can include a variety of fees, including:
- Appraisal fee: This fee is paid to the appraiser who evaluates the property to determine its value.
- Credit report fee: This fee is paid to the lender to pull your credit report.
- Tax Service fee: This fee is paid to the lender to monitor payment of your property taxes each year.
- Title insurance premium and endorsements: These fees are paid to ensure that the title is clear and the lender’s loan is insured against any issues with the title.
- Recording fees: These fees are paid to the Clerk of Court to record the Deed and the Mortgage.
- Survey fee: This fee is paid to the surveyor to verify the property’s boundaries.
- Origination fee: This fee is charged by the lender for processing the loan application.
- Underwriting fee: This fee is charged by the lender for underwriting the loan.
- Prepaid interest: This fee is paid to cover the interest that accrues between the closing date and the first payment due date.
- Prepaid escrows: If you are escrowing taxes and insurance into your monthly payment, the lender will collect a few months of escrow to establish the escrow account.
- Homeowners insurance: This fee is paid to insure the property against damage or loss.
- Private mortgage insurance: If you make a down payment that is less than 20% of the purchase price, you may be required to pay for private mortgage insurance.
How much are closing costs?
Closing costs can vary depending on the location of the property, the type of mortgage, and the lender. On average, closing costs can range from 2% to 5% of the purchase price of the home. For example, if you are purchasing a home for $250,000, your closing costs could range from $5,000 to $12,500.
Can you negotiate closing costs?
While closing costs are typically non-negotiable, you can ask the seller to contribute to the closing costs. This is known as a seller concession, and it can help reduce the amount you need to pay out of pocket at closing. However, it is important to note that the seller is not required to agree to a seller concession.
Conclusion
Mortgage closing costs are the fees and expenses you pay when you close on a home loan. These costs can vary depending on the lender, location of the property, and the type of mortgage you are getting. It is important to budget for these costs when you are considering buying a home, as they can add up to thousands of dollars. Your lender should provide an estimated breakdown of the closing costs so you will be aware of what you will be paying for.