Closing Costs Demystified

Don’t be caught off guard by closing costs. We’ll tell you what closing costs are and what you can expect.

About Closing Costs

Closing costs are what lenders charge for the origination of home loans. A portion of these expenses are related to the application for the loan, and others are associated with the home itself. Some lenders may offer to pay the closing costs for you, but otherwise the borrower has to foot the bill. Closing costs usually cost between 3%-6% of the loan amount. For this reason, it’s a good idea to begin saving for closings costs before you even start looking for houses. Closing costs can deplete your cash reserves quickly if you’re not prepared.

What They Pay For

Typical closings costs include the following:

• Application fees & credit report
• Title search & insurance fees
• Property appraisal
• Lender’s legal fees
• Home inspections
• Recording fees
• Surveys
• Document stamps
• Points & origination fees
• Buyer’s attorney

The Good Faith Estimate

According to federal law, your lender must give you a good faith estimate (GFE) of closing costs within three days of your applying for home loans. The GFE should list all of the costs affiliated with the mortgage application. Many of the fees included in the GFE may be negotiable. Review your list of closing costs carefully and ask about any fees that seem excessive or unnecessary. You might be able to talk your lender into eliminating or reducing these junk fees. Another good reason to shop around is to compare the closing costs associated with different loans. If you have other offers on hand, you will be in a better position to negotiate more reasonable closing costs with lenders. Keep in mind that some closing costs have already been negotiated with third parties and cannot be changed.

Now that you are familiar with closing costs, visit Buying a House 101 to review the process of buying a home.