Closing Costs: What Are They and How Much Will You Pay?
A down payment is not the only thing you need to have when closing on your loan. Closing costs are expenses you pay the lender for the various services they provide for the approval of your mortgage.
Let’s dive into what closing costs are and how much you can expect to pay.
What Are Closing Costs?
Closing costs are processing fees and charges that you pay to your lender to cover the costs of services rendered for creating and finalizing your loan. These cover your home appraisal, origination and underwriting of a mortgage loan, taxes, real estate commissions, insurance premiums, and record filings to name a few.
How Much Do You Pay For Closing Costs?
Closing costs are usually about 3% to 6% of the price of your home. This means that a loan worth $200,000 can cost you between $6,000 to $12,000 in closing costs.
Buyers and sellers pay closing costs but the majority are usually shouldered by the buyer. You can negotiate with your seller to help cover closing costs.
Types of Fees With Closing Costs
Lenders will provide you with an itemized list of closing costs with your loan estimate. Here are some of the common fees and charges you can expect.
Lenders may use attorneys to prepare and review home purchase agreements and contracts.
Lenders usually charge a fee to process your mortgage application.
Credit Report Fee
This will amount to about $15 to $30 to pull your credit from the three main reporting bureaus.
Homeowners Association Transfer Fee
This fee covers the cost of moving the burden of HOA fees from seller to buyer. This ensures that the seller is up to date on their HOA dues.
Lenders usually ask for a year’s prepayment of homeowners insurance premium during closing.
Lender’s Title Insurance
This protects a lender if an ownership dispute or lien comes up that wasn’t found during the title search. You pay a one-time fee to the title company upfront.
Owner’s Title Insurance
Title insurance is optional but recommended. This policy protects you in case someone challenges your homeownership. Expect to pay 0.5% to 1% of the purchase price for your policy.
This fee covers the lender’s administrative costs to process and underwrites your loan which is usually 1% of the loan amount.
PMI (Private Mortgage Insurance)
If you put down less than 20% your lender may require a PMI which means you may pay for the first month’s PMI payment upon closing.
There are instances where you need to check property loans and shared fences to ensure a property’s boundaries. You pay a fee to a surveying company which costs around $300 to $500.
Need Help With Closing Costs?
Closing costs can’t be avoided when buying a home. If you want to know how to save on fees and other charges from closing costs get in touch with one of our loan experts to know more.
Give us a call or send us a message on our website for a free consultation.