Understanding Closing Costs
Like the down payment and appraisal, closing costs represent another upfront expense you’ll need to pay before moving in to your new home.
On the bright side, paying those dreaded, final fees is actually a milestone signifying that your home buying journey or refinance is nearly complete. As long as you go into it knowing what to expect, you can pay closing costs and sail through the closing process with minimal hassle.
On average, closing costs are 2–5% of the purchase price of your home. Whether you’re buying a home or refinancing, this money will be paid out to a number of people who make financing your home possible—your lender, your agent, the appraiser, the title officer, and more. All fees and recipients will be outlined in your closing disclosure, which you should receive from your lender at least three days before your closing date. Review it carefully. If something looks different than you expected, contact your mortgage banker right away. If there are changes, your lender must issue another Closing Disclosure, delaying your closing for another three days.
Closing costs can be broken down into several categories, not all of which will apply for every mortgage.
- Property related fees—appraisal, home inspection
- Loan related fees—application, credit report, origination fee, underwriting, attorney’s fees*, prepaid interest, loan origination, discount points*, mortgage broker fee*
- Mortgage insurance fees—mortgage insurance application fee, upfront mortgage insurance*, FHA/VA/USDA fees*
- Property taxes, annual assessment or homeowner’s insurance, annual assessments for homeowner’s association*, homeowner’s association dues*
- Title fees—title search fee, lender’s and owner’s title insurance
* if applicable
The most efficient and affordable way to pay closing costs is to pay up front, out-of-pocket. Depending on your lender, you may be able to finance your closing costs by rolling them into your mortgage. But you’ll continue to pay interest on those costs throughout the life of the mortgage.
Closing costs can vary dramatically from one loan—or lender—to another. So, as with most steps in the home-buying process, exploring several options is highly recommended. Do your homework, and comparison shop. You may be able to negotiate some of the fees down. Some states, counties, and cities even offer low-interest loan programs or grants to help first-time home buyers cover their closing costs. Check with your local government to see what’s available.
Still have questions? Contact your USA Mortgage Loan Originator. They’ll be happy to walk you through your closing costs and help you find the best way to pay them.
