Finance Closing Costs Mortgage

Closing costs are the expenses over and above the property’s price that buyers and sellers incur to finalize a real estate transaction. For buyers taking out a mortgage, these costs can be substantial and significantly impact affordability.

What’s Included in Mortgage Closing Costs?

Closing costs encompass a variety of fees and charges. Some of the most common include:

• Loan Origination Fee: A fee charged by the lender for processing the loan. It’s typically expressed as a percentage of the loan amount (e.g., 1% origination fee on a $200,000 loan would be $2,000).
• Appraisal Fee: Covers the cost of having a professional appraiser assess the property’s market value. This protects the lender by ensuring the property is worth the loan amount.
• Credit Report Fee: A fee for the lender to obtain the buyer’s credit report, used to assess creditworthiness.
• Title Insurance: Protects both the lender (lender’s title insurance) and the buyer (owner’s title insurance) against title defects, such as liens or ownership disputes, that might surface after the purchase.
• Title Search Fee: Pays for researching the property’s ownership history to identify any potential title issues.
• Recording Fees: Fees charged by the local government to record the mortgage and deed in the public record, officially transferring ownership.
• Property Taxes: Often include pre-payment of property taxes to establish an escrow account.
• Homeowners Insurance: Often include pre-payment of homeowners insurance to establish an escrow account.
• Escrow Fees: Fees charged by the escrow company for managing the funds involved in the transaction and ensuring all conditions of the sale are met.
• Survey Fee: Covers the cost of surveying the property boundaries to confirm its size and dimensions. This might be required by the lender or title company.
• Private Mortgage Insurance (PMI): If the down payment is less than 20%, the lender will likely require PMI to protect themselves if the borrower defaults on the loan. The initial premium or a portion thereof may be due at closing.
• Attorney Fees: Some states require or recommend having an attorney present at closing, incurring attorney fees.

Who Pays for Closing Costs?

While buyers typically bear the brunt of closing costs related to the mortgage (origination fee, appraisal, etc.), sellers also have closing costs. Seller costs include things like real estate agent commissions, transfer taxes (in some areas), and potentially attorney fees.

Negotiating Closing Costs

Some closing costs are negotiable. Buyers can try to negotiate with the seller to cover some or all of the closing costs, particularly in a buyer’s market. Shopping around for different lenders can also yield lower origination fees and potentially better terms on other services. Reviewing the Loan Estimate carefully is crucial. This document, provided by the lender within three business days of application, outlines all estimated closing costs, allowing buyers to compare offers from different lenders.

Estimate and Prepare

It’s essential to get a clear estimate of closing costs as early as possible in the home buying process. This allows buyers to budget accordingly and avoid any surprises at closing. A good rule of thumb is to budget for 2-5% of the loan amount for closing costs, but the exact amount will vary depending on location, loan type, and other factors. Understanding closing costs empowers buyers to make informed decisions and navigate the mortgage process with confidence.