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Phone: 606-618-0698

What should you expect in terms of closing costs?

You've got your down payment and earnest money. You've had an inspection done. You're well on your way toward buying your new home. When the time for closing arrives, you should be aware that you will be paying for some services at the closing. These closing costs vary, but can be significant based on loan type, mortgage lender and state law. What are these costs for?

In general, the reason for closing costs is that your mortgage lender and a variety of other service providers perform services during the mortgage process. Closing costs are set up to pay for these services, along with property and transfer taxes and certain insurance. Exactly what services are required and what fees will be included in your closing depends on a number of factors, but here are some common items included in in closing costs:

  • Application and credit report fees
  • Underwriting fee
  • Loan origination fee (typically about 1 percent of the loan amount)
  • Closing fee/escrow fee paid to the party handling the closing
  • Points/discount points (an optional payment to reduce your interest rate and monthly payment)
  • Rate lock fee
  • VA funding fee
  • Attorney fee for the preparation or review of the purchase agreement
  • Property appraisal fee
  • Deed recording fee
  • Property surveying fee
  • Flood determination and monitoring fee
  • Lead-based paint inspection fee
  • Pest inspection fee
  • Title search fee
  • Lender's title insurance
  • Owner's title insurance
  • Homeowners association transfer fee
  • FHA mortgage insurance -- up-front fee
  • Private mortgage insurance (PMI)
  • Homeowners insurance (typically, the first year's premium)
  • Escrow deposit (e.g., two months of mortgage insurance and property tax payments)
  • Property tax (any taxes due within 60 days)
  • Property transfer tax
  • Realtor commission (often paid by the seller)

How do I know what closing costs to expect?

When you submit a mortgage application, your lender is required to provide you with a loan estimate which includes estimates of the closing costs. If you don't understand the purpose of a particular cost or fee, you have an opportunity to question your lender and attorney about it.

When closing time approaches, compare your lender's original loan estimate with the final closing paperwork. Some fees naturally fluctuate, so don't expect an exact match, but the final cost should generally reflect what you were told in your estimate.

Many of the costs listed above are conditional, meaning they would only be included in certain situations. For example, a homeowners association transfer fee is only necessary if you purchase a property belonging to a homeowners association that requires such a fee. Private mortgage insurance is often required only when your down payment is less than 20 percent of the purchase price. Points and rate locks are generally optional, although they may reduce the overall cost of your loan.

Some fees may seem duplicative, but each serves a different purpose. For example, the underwriting fee for the bank covers the cost of its research into whether to approve you for a mortgage. This process may also require a credit report, the cost of which is typically billed separately. The loan origination fee is also paid to the bank, but it is the fee the bank charges for making and/or servicing the loan.

Depending on the market, buyers and sellers may come to varying agreements on who pays certain closing costs. Your realtor and/or attorney can help you sort out which costs could be covered by the other party in your specific circumstances.

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