What are Closing Costs?
Whether it’s your first home or your third, there’s a lot to know and understand when you’re buying a home. At the beginning of homebuying journey, many first-time buyers don’t know that there is more cash needed to close the sale than just the down payment. There are a variety of closing costs which come with the purchase of a home.
Closing Costs Explained
When purchasing a home, your mortgage lender is required to disclose all fees that are part of the transaction. These fees are known as “closing costs” and are included in your Loan Estimate at the beginning of the process.
MORTGAGE TERM: A Loan Estimate is a multi-page form that details the financial specifics of the loan you requested. After applying for your mortgage, your lender must provide this Loan Estimate within three business days of receiving your application. This will give you all of the most pertinent information about your loan, so you know exactly what you’re getting into.
Closing costs will be disclosed again in the Closing Disclosure statement you will be given at the end of the process so you will know what you can expect.
Types of Closing Costs
There are two categories of closing costs: prepaid (recurring) and non-recurring.
Prepaid Closing Costs are expenses that you’ll have to pay regularly as a homeowner. When you close on the sale of a home some costs, such as interest or real estate taxes, are due upfront. After closing, all of these items are collected as part of your regular mortgage payment. Prepaid closing costs include, but are not limited to:
- Taxes and insurance
- Initial escrow deposit
Non-recurring Closing Costs are the fees and expenses that go along with processing your mortgage. They include, but are not limited to:
- Title insurance
- Title recording fees
- Transfer taxes (sales tax)
- Fees for pulling credit
- Loan origination
- Processing fees
- Attorney’s fees
- Inspection fees
- Mortgage Insurance – if applicable
FAQs About Closing Costs
How can I expect to pay?
Closing costs vary from loan-to-loan because many fees are based on the exact amount of money borrowed. The more you borrow, in general, the higher your costs. However, in most cases, closing costs run between 2-5% of the sale of the home.
Are all fees paid at closing?
Even though they’re called “closing costs,” you may be asked to pay some fees as the loan process progresses, such as home inspections and appraisals. While your estimated closing costs will be included in the loan estimate, many of the fees listed can change along the way.
Are there other options for closing costs?
Find out how Seller Concessions and Interested Party Contributions can assist you with your closing costs.
What if I buy in cash?
If you are purchasing a home using cash only and are not leveraging a mortgage, you will not need to pay all of the same closing costs as a homebuyer using a loan. You won’t pay any fees associated with getting a loan, such as origination fees, discount points, fees for pulling credit, etc., but you will still pay taxes, insurance, and other various fees.
If you have any questions about closing costs, your out-of-pocket expenses, or anything else mortgage-related, contact us!
Categories: Mortgage Timeline