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Let's Talk Closing Costs

What are closing costs? How do they affect my monthly payments? How do you calculate them? All your questions answered!

If you are about to close on a mortgage, it’s important to understand mortgage closing costs. These fees can be confusing and complicated, but understanding them will help you make more informed decisions about your mortgage. This article will go into what mortgage closing costs are, how they affect your mortgage payments, and how to calculate mortgage closing costs for yourself.



Mortgage closing costs are the fees you pay when securing a loan. These can be between 2% and 6% of your property’s purchase price, depending on whether or not they include mortgage insurance. For example, if you buy a $200,000 house, the closing costs will range from $2 to $ 12,000. Further costs include application fees, attorney’s fees and discount points if applicable. The total real-estate closing cost can even approach 15% of a property’s value with real estate sales commissions and taxes included.

Depending on a home’s purchase price, loan type, and lender, total closing costs can vary widely, although the average between 2-5% of the property’s value tends to be. Homebuyers can find the specific closing costs of real estate transactions in the disclosure section of their purchase agreement, which is determined by the particular lender and loan type that the buyer selects.

For the mortgage itself, the borrower can find closing costs in the loan estimate or the closing disclosure provided by the lender. Closing disclosures include the total loan amount, interest rate, annual percentage rate, and monthly payment schedule.


Who pays the closing costs?


Expenses such as real estate agent commissions, prorated real estate taxes, and transfer taxes are almost always covered by the seller. The seller might also pay for the cost of a home warranty and any fees for associations the property may belong to.

Refinancing is a little different, as all of these costs will have to be covered by the refinancer.




What’s included in the closing costs?


Closing costs vary from transaction to transaction and depend on the individual buyer, seller, property type, loan amount. While not all of these costs are paid by buyers, they can be numerous. Here are some examples:


Appraisal Fee:

When buyers get a mortgage on a property, their lender wants to know its value is worth more than they’re lending against. If the buyer defaults and stops making payments, the lender will need to sell the house for them to get back what’s owed. For this reason, lenders often tack the appraisal fee onto the loan price.


Inspection Fee:

Before a lender issues a loan, they might inspect the property. This inspection ensures no problems such as water damage or termites and that everything is in good condition. These inspections can sometimes be paid separately from fees to get things like an appraisal done by lenders, but usually, these costs are rolled into your mortgage at closing.


Loan Origination Points:

Points are an amount that borrowers pay to cover the cost of securing their loan. They may be charged as part of a flat fee, including application fees and other charges imposed by lenders.


Mortgage Insurance Premium:

If you make a down payment of less than 20%, your lender may require you to buy PMI, involving upfront premium payments. If this makes it difficult for the borrower to repay their loan in full by its maturity date, they will have an increased risk of defaulting on the debt obligation. This is especially true if no other assets or income streams could be used as collateral against this property. As a result, lenders often don’t take chances when providing loans at such low down-payment levels unless these borrowers pay premiums provided through government programs like FHA or USDA mortgages.


Prorated Real Estates:

When someone sells a property, the buyer will get their tax bill for that year after they move in. This means you have to pay back taxes from when it was your home until the time of sale because people are responsible for paying real estate taxes even while living somewhere else.


Real Estate Commissions:

The cost of real estate commissions is typically at least five to six percent but can be as high as ten or more depending on the type of broker and property.


Recording Fee:

New deeds must be filed with the local county recorder to show new ownership of real estate. These documents are usually kept in a database and can aid researchers, genealogists, etc., when they’re looking for information about property holdings over time. The fees charged by counties vary but tend to be very low (a few dollars).


Stamp Tax:

Stamp and transfer taxes are owed when a property changes hands. In some areas, these can be substantial, but they tend to be relatively small in most cases.


Survey Fee:

To get the most accurate information on the dimensions of a property, some people opt for having it surveyed. A surveyor outlines land features to create an easy-to-read map that shows legal boundaries and other details about what is being sold or bought if someone wants multiple parcels combined into one sale.


Title Fee:

This is a fee that an attorney or title company charges for checking the land history of a property. The lawyer then confirms whether the previous owner can convey clean ownership and any other debts on it, such as liens or mortgages. They will also prepare new documents to transfer ownership at this time; however, fees typically range from $200-$2,000 depending on state laws.


Title Insurance:

Title insurance protects a buyer by covering the costs of any problems that may arise from deeds or other legal issues. If someone tries to take possession of their property, title insurance will help ease the situation while protecting the borrower.



The Bottom Line


Closing costs can be a considerable expense for home buyers, and they differ depending on the type of property you’re buying. For instance, if you’re using financing to buy your house, expect to pay closing costs that will vary from 2% to 5%. If you want more information about how much money in total is going into that down payment (including closing costs), contact our team today!