What They Are and How to Lower Them

What They Are and How to Lower Them

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Though it’s typically the biggest cost you’ll face when you buy a house, the down payment is only one portion of your expenses. You’ll also have mortgage closing costs, which are fees associated with originating, underwriting, and closing your mortgage loan — among other things.

Here’s what to expect so you’re prepared for the mortgage closing costs you’ll pay at or before closing:

What are mortgage closing costs?

Mortgage closing costs include many fees for services, many of which your lender requires or provides. You’ll also have closing costs associated with your home’s title insurance policy, any attorneys or appraisers required along the way, taxes, insurance, and more.

Generally, closing costs clock in somewhere between 2% and 5% of your home’s purchase price. So, on a $250,000 home, that would amount to between $5,000 and $12,500.

Find Out: How Much Does It Cost to Buy a Home?

Here are some fees that make up mortgage closing costs

There are dozens of individual fees and charges that comprise your closing costs, with the exact cost of each varying based on the borrower, mortgage lender, location, and specific loan product.

Here are a few common closing costs and what you can expect to pay for them on average:

  • Appraisal fees: These are the fees charged to appraise your property’s value. These generally cost around $300 to $500, but can cost significantly more.
  • Origination fee: This is what you pay the lender to actually originate your loan. This ranges from 0.5% to 1.5% of your loan amount, so $1,000 to $3,000 on a $200,000 loan.
  • Title insurance: This protects the lender in the event there are legal issues regarding the home’s title. The costs vary widely by state and the price of your home, but they average around $1,000 per policy.
  • Survey fee: Your lender might require a survey to be done of your home’s lot in order to establish clear boundaries of the property. The average cost of a survey is $504.
  • Credit report fee: The lender will also need to pull your credit report when processing your application. Although sometimes, the lender takes care of this fee themselves, it might fall on you. This fee is usually $30 to $50.
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Homeowner’s insurance, flood certification fees, HOA dues, tax certification fees, property taxes, notary fees, mortgage insurance, local recording fees, charges to fund your escrow account after closing, transfer taxes, and more will all go into your loan cost total as well but these vary greatly.

Check Out: First-Time Homebuyer Tips: 10 Mistakes to Avoid

Do lenders have to disclose closing costs?

If this all sounds a bit overwhelming, don’t fret. You’ll see a lot of these costs noted on your loan estimate, which will give you an idea of what to expect well ahead of time.

Your mortgage lender is also required to give you a breakdown of all your expected closing costs at least three days before your closing date. This will come by way of a Closing Disclosure form, which will detail all the fees, charges, and taxes you’ll owe come closing day, as well as your total “cash to close.” This is how much cash you’ll need to pay to close your loan.

Tip: If you’ve been offered a “no-closing-cost” home loan, you’ll still have to pay closing costs, just not at closing. Your Closing Disclosure will itemize the individual closing costs that the lender or other parties are paying at closing, and these will appear in the “Paid by Others” and “Lender Credits” sections of your form.

Learn More: Closing on a Home: How Long It Takes and What to Expect

Can closing costs be negotiated?

Many of the costs of closing a home loan are not set in stone and can be negotiated or, at the very least, shopped around for. To understand what costs you can shop for, check the original loan estimate form you received from your mortgage lender.

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In the loan estimate, you should find a section titled “Services You Can Shop For.” Items listed under this header are ones you can price-shop for. If you find a lower rate for the listed services than what’s quoted, let your loan officer know so they can update your estimate accordingly. The lender will also provide you with a Settlement Service Provider List that gives the name of at least one provider that can provide the required services (this is usually the provider the lender uses to obtain fee estimates for the loan estimate).

You can also see if your lender is willing to negotiate on their costs — things like the origination, underwriting, or application fees. You can also ask the seller to contribute to your closing costs (called seller credits). Ask your real estate agent if that’s a smart move in your case.

Another way to save on costs

Mortgage closing costs, and the costs of buying a home in general, differ depending on the lender and transaction. If you’re looking to lower your homebuying expenses, make sure to shop around. You can use Credible to get started and compare multiple lenders at once to find the right loan for you.

About the author

Aly J. Yale

Aly J. Yale is a mortgage and real estate authority and a contributor to Credible. Her work has appeared in Forbes, Fox Business, The Motley Fool, Bankrate, The Balance, and more.

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