After saving up for your down payment, going house hunting, and then finally applying for a mortgage, dealing with closing costs can often be an unwelcome surprise.
When it comes to the home-buying process, it’s essential to understand all the variables and costs that will be involved in order to make sure everything goes as smoothly as possible. This is particularly pertinent to first-time home buyers.
In this piece, we’re going to provide a rundown of mortgage closing costs. Let’s dive in.
Mortgage Closing Costs: What Are They?
Your mortgage closing costs generally include various fees for expenses and services that need to be paid to finalize a mortgage. Paying closing costs is essential, whether you’re buying a home or refinancing your mortgage loan.
While the majority of the mortgage closing costs tend to fall on the buyer, the lender also typically has to pay some of them, such as the real estate agent’s commission.
Mortgage Closing Costs: How Much?
On average, the closing costs that the buyer has to pay tend to run between 2 percent to 5 percent of the loan amount. For a home purchase that cost $300,000, a buyer’s closing costs would be anywhere from $6,000 to $15,000.
The most cost-efficient way to cover mortgage closing costs is to pay them as a one-time expense out-of-pocket. Folding these costs into your loan, if your lender allows it, is an effective way to finance it.
However, this means that you’ll be charged interest on those costs through the term of the mortgage loan.
Mortgage Closing Costs: Summary
- Home inspection
- Appraisal fee
- Application fee (varies)
- Attorney’s fee (hourly)
- Assumption fee
- Origination fee (about 0.5% of loan amount)
- Prepaid interest (based on loan amount)
- Mortgage broker fee (0.50% to 2.75%)
- Discount points
- Upfront mortgage insurance (0.55% to 2.25%)
- Mortgage insurance application fee (varies)
- Property taxes (two months’ worth)
- FHA, VA and USDA fees (1% to 3.3%)
- Homeowners insurance (depends on home value and location)
- Upfront HOA fee (varies)
- Title search fee
- Title insurance — Owner
- Title insurance — Lender
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