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Closing Costs: What Home Buyers Should Expect

Prepare for closing costs

For anyone who is looking to buy or refinance a home, closing costs can play a huge role ­­– especially if you aren’t prepared for them. According to a recent survey by ClosingCorp, more than 50% of first-time and repeat home buyers are caught by surprise when it comes to closing costs.  In fact, some of those home buyers were unaware closing costs were even required when it comes to closing on a mortgage.

If you’re buying a home, it’s important to know in advance that your mortgage down payment isn’t all that you will pay to close on your loan. In fact, there’s a whole list of expenses and fees that will need to be paid at the same time as the down payment. Let’s dive into what closing costs really mean and how you can be prepared.

What are closing costs?

Mortgage closing costs are fees charged by the lender for services and third party expenses that are associated with closing on a home loan. The closing point is when the title of the property is transferred from the seller to the buyer. These costs can range from appraisals and title insurance to inspections and taxes. It’s important to note that either the buyer or the seller can incur these costs. Also, while it’s the lender that will disclose these fees, they typically have no control over them. Many of the closing costs actually go to various third parties for services necessary to complete the transaction.

How much are closing costs?

Closing costs can vary by loan type and amount. For example, the costs on a Conventional mortgage may not be the same as those for an FHA mortgage. Also, some loans will allow a seller to cover all or some of the closing costs, meaning the home buyer will not be responsible for paying them.

Closing costs generally range between 1% – 2% of the home’s purchase price. That may not seem like much in comparison to the total price of the home, however, if you’re not prepared to pay that, then it can come as a shock when you learn how much you will need to bring to closing.


What is included in closing costs?

Here are some examples of the costs that may be associated with closing on your home loan:

  • Origination Fee: This covers the lender’s administrative costs and usually totals about one percent of the total loan. This is not always required.
  • Underwriting/Administration Fee: This goes to your lender and covers the cost of processing and underwriting the loan.
  • Appraisal: This is paid to the appraisal company to confirm the fair market value of the home. A property appraisal is generally required by a lender before loan approval
  • Survey Fee: This fee goes to a survey company to verify property lines and to ensure there is no encroachment on the lot.
  • Attorney Fee: This pays for an attorney to review the closing documents on behalf of the lender. This is typically required in Texas.

How to Keep Closing Costs Down

If you’re feeling overwhelmed by the amount of closing costs you may be facing, there are a couple options to minimize or eliminate how much you pay.

Negotiate With Seller
A buyer can always request, within the offer, that the seller pay a portion or all of their closing costs. This is a common practice and something all buyers should consider if they have limited funds. You will want to consult with your real estate agent on this.

Higher Interest Rate
Taking a slightly higher rate may allow your lender to give you credits to cover part or all of your closing cost. Doing this allows the lender to include the closing costs into the interest rate, essentially allowing them to be paid off over the life of the loan instead of the home buyer paying them upfront.

If you have questions regarding closing costs and would like to like to speak with a loan officer, please contact us today.

Are you struggling to come up with large down payment? We have down payment options as low as 0%.


Topics: Closing Costs Home Loans