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How Much Are Closing Costs on a Mortgage?

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As you plan to purchase a home, it’s important to keep in mind that you won’t just be paying the cost of the home. You will also be paying “closing costs,” which are all those fees associated with your real estate purchase. Closing costs on a mortgage may be paid by the seller but are most often paid by the buyer and are paid at closing, when you sit down at the closing to sign papers and the property title is transferred to you.

 

What is included in closing costs?

Closing costs on a $200,000 home can range from $5,000 to $10,000, depending on several factors. Fees cover costs incurred by your attorney, lending institution, and appraiser to cover professional and administrative services. They include:

    • Property transfer taxes
    • Title search fees
    • Origination fees
    • Escrow fees
    • Other smaller fees to cover town recording, flood certification, appraisal, credit reporting, tax service, underwriting, rate locks, etc.

Keep reading for a breakdown of each cost.

 

What is included in closing costs?

Closing costs on a $200,000 home can range from $5,000 to $10,000, depending on several factors. Fees cover costs incurred by your attorney, lending institution, and appraiser to cover professional and administrative services. They include:

    • Property transfer taxes
    • Title search fees
    • Origination fees
    • Escrow fees
    • Other smaller fees to cover town recording, flood certification, appraisal, credit reporting, tax service, underwriting, rate locks, etc.

Keep reading for a breakdown of each cost.

 

Title search fees

The second-largest fee is usually the cost of the buyer’s attorney to do the title work, issue title insurance, and conduct the closing on the house. The lender requires basic title insurance, which protects the lender in case there is a lien against the property that the attorney did not find. The buyer may also opt to pay an additional charge for an expanded owners policy (which is not required by the lender). Attorney fees are usually a minimum of $600 to do the title search and $400 for the loan closing. Title insurance, which is issued by your attorney and is based on the loan amount, can add another $500 or more.

 

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Origination fees

Origination fees consist of optional “points,” paid by the buyer to lower the interest rate; and loan level price adjustments (LLPAs), which are based on the borrower’s credit score and the amount of the down payment amount. These fees can usually be eliminated by raising the interest rate. Your lender will present and explain these fees once he or she has your credit report scores and knows the amount of your down payment.

 

Escrow fees

Escrow fees are required by some lenders and not by others. If you plan to escrow your property taxes and homeowners insurance into your loan, your lender will collect 1/12th of the annual payment for these each month. The escrow funds will be used to pay the property tax and homeowners insurance bills once they become due. Some people prefer to do it this way because it allows them to pay their taxes, insurance, principal, and interest with one check. The downside is that the borrower will need to come up with additional funds at the closing to fund the escrow. The homeowners insurance needs to be paid for the first year up front and usually a minimum of six months of property taxes must be paid.

 

Miscellaneous fees

Other smaller fees collected at the closing include town recording fees, a flood certification fee, an appraisal fee, a credit report fee, a tax service fee, underwriting fees, and rate lock fees. These fees vary quite a lot between lenders, so you will want to shop around to get an idea of what various lenders are charging.

The lender will give you a loan estimate, once you apply for the loan, which will list the fees. This is usually provided to you within three business days of application. Many online applications offer the loan estimate at the same time you submit your application.

 

How to reduce closing costs

To reduce some of the closing costs, the buyer and seller can agree to the seller paying some of the closing costs. On conventional mortgages, the seller is limited to 3% of the sale price on loans over 90.01% of the sale price, and 6% of the sale price for loans at 90% or under. These are also capped at what the actual closing costs are, as the seller can’t contribute more than the actual closing costs. The amount is written into the purchase and sale contract.

Some lenders may have programs where they pay some of the closing costs, but this usually comes with a higher interest rate, and is more common on mortgage refinances than purchases. There is a lot of additional information about home buying closing costs on the web, so do your research and ask your lender about closing costs before you begin the mortgage process.

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