When you buy a home, there is more to think about than just your mortgage. People are often concerned with how much they need for a down payment, but closing costs are a big part of the equation. How much you need for closing costs has a lot to do with the home’s sales price.
All mortgages have closings costs. Closing costs are fees that the borrower must pay to third-party vendors who provide services needed to get the loan cleared to close. Typically, closing cost fees are collected by the lender and paid by the settlement agent to the vendors. Usually, closing costs are around 3%-6% of the home price.
Originating a mortgage involves some third-party vendors whose services are required to get your loan closed. Although every loan has different closing costs depending on the lender, here are some of the most common:
- Origination Fee -The origination fee is paid to the lender to prepare your loan from application to clear to close.
- Appraisal Fee – The appraisal fee is paid to a professional appraiser who comes to your home to assess its value. An appraisal ensures the loan is a good investment for the lender.
- Title Fees – A title proves that the seller legally transferred ownership to the buyer. Title insurance is required on all mortgage loans.
- Property Survey – Helps protect your investment by telling you the exact dimensions, size, and location of your home on the property. Also, it documents any land improvements such as a driveway in case of a boundary dispute.
- Credit Report – The report provides a FICO score and credit history for the lender to review. The higher the credit score, the better the rate and terms of the loan in most cases.
- Flood Certificate – It shows the flood zone status of the property of interest.
- Settlement Agents Fee – The settlement agent manages the transfer of funds, properties, and legal documents to every party involved in the mortgage process. In some states, it is a real estate closing attorney, and in others, it could be a title company.
- Underwriting Fee – The underwriters evaluate and verify the mortgage loan application and decide whether they approve or deny it.
- Mortgage Recording Fee – A government agency registers the purchase or sale of the piece of real estate to be a matter of public record.
Closing costs can be a significant expense for many borrowers. In some cases, the seller will help pay for closing costs. However, this is less common in a sellers’ market. If you don’t have enough cash on hand to pay for closing costs, you might consider adding them to the loan amount if possible. This option is something you would need to discuss with a loan officer or mortgage professional. In addition, there are some state and local programs that may assist first-time homebuyers with closing costs, but again programs vary by state and lender. In any case, your closing costs should not come as a surprise to you. Lenders are required to provide a list of fees referred to as a loan estimate when you apply for a mortgage.
Contact us to learn more about our closing costs.