Closing Costs: What Are They and How Much Do They Cost?
What are closing costs?
How much will I pay in closing costs?
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Closing Costs: The Breakdown
- Appraisal fee. Your appraisal fee is what you’ll pay your home appraiser when they come out to look at your home. This typically happens once the home is under escrow— meaning that both you and the seller have reached a contractual agreement for you to buy the home. Having a home appraised is standard practice, and required by most mortgage lenders to ensure the home is worth (or roughly worth) the cost of the mortgage. Homebuyers are generally responsible for paying appraisal fees, which typically cost around $400.
- Home inspection fee. Home inspections are another fee that’s typically paid by the home buyer, and with good reason. Since you’ll want to be the one choosing who you hire to inspect your home for issues before you buy it, that also means you’ll be the one paying them the home inspection fee. Home inspections cost the average homeowner $400.
- Property taxes. Property taxes are one of those things that can vary in cost dramatically based on where you live and the property you buy. The important thing to note about property taxes is that you will most certainly pay them, and you might even have to pay several months’ worth in advance at the time of your buyer’s closing meeting. Once your mortgage is in place, your lender will likely open up an escrow account for you, which will automatically deduct a portion of your monthly mortgage payments to cover property taxes and insurance premiums. To learn more about the property taxes in your area, contact your real estate agent or local assessor’s office.
- Homeowners insurance premium. If you’re becoming a homeowner, you'll likely want to take out a homeowners insurance policy. Not only will this protect your home in the event of an accident or disaster, but it may also be required by your lender to be approved for your mortgage.
- HOA fees. When you buy a home that resides within a homeowners association (HOA) then you may be required to pay some of your HOA fees upfront at closing. HOA fees vary widely, so it helps to talk to your real estate agent to get a better idea of what to expect for a given neighborhood.
- Application fee. Loan application fees cover the cost of processing your request and any other initial costs in setting up your loan, such as pulling your credit reports or checking your credit score.
- Loan origination fee. Also known as an “administrative fee” or “underwriting fee”, this charge covers the costs associated with your lender preparing your mortgage. Loan origination fees typically cost between 0.5% – 1% of your mortgage amount. On a home with a $300,000 mortgage, this would be anywhere between $1,500 and $3,000.
- Attorney fees. If your state requires an attorney to be present at the closing table, then you’ll pay an attorney fee to have them there. As these can vary quite a bit, it’s worth checking with your lender or real estate agent what the local requirements and associated fees are.
- Prepaid interest. Many lenders charge their borrowers for any interest that accrues between the time of settlement and the first month's due date on your mortgage. Whatever that amount is, it will likely be lumped in with your other closing costs.
- Mortgage broker fee. If you decide to work with a mortgage broker, they will charge you a commission based on a percentage of your total home loan amount. These typically range between 1% to 2% of the loan but can be as much as 2.75%.
- Discount points. At some point, your lender may offer you something called discount points, which reduce your interest rates for an upfront cost. Generally, one point equals 1% of the loan amount. These can be worth it if you plan on staying in your home for a long time (and have been offered high interest rates), but otherwise, just tend to add unnecessary expense to your already-expensive closing costs. Keep in mind that you can always refinance your mortgage later on to get more competitive mortgage rates.
- Special loan fees. If you end up working with a lender on an FHA loan or VA loan, then you may also be required to pay additional fees for those particular loans.
Mortgage insurance fees
How can I calculate closing costs?
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