Mortgage Closing Costs: What’s Included?

If you’re in the market for a new home, it’s easy to only focus on two figures: 1) the asking price and 2) the down payment. But there’s another number you should factor into your home buying budget – mortgage closing costs.

Many prospective buyers are surprised to learn that closing costs typically range between 3% to 6% of the home’s sales price. These charges cover the costs of processing the loan, government fees associated with real estate transactions, escrow related items and other costs involved with homeownership;  the majority of these are paid the day the home changes ownership. You can estimate closing costs by multiplying your expected purchase offer by 1.06 to gauge how much you might need to bring to the table at closing.

While buyers typically pay most closing costs, sellers may still be responsible for a portion due at closing.

The more you know about closing costs, the greater chance you’ll have of successfully negotiating with the seller to reduce these costs.

Fees will vary based on your mortgage loan, geographic location, and state requirements.

Common Closing Costs

• Application fees are typically non-refundable and are often required to process the loan.
• Appraisal and survey fees are charges made by independent service providers to confirm the market value of your home. Lenders typically order these documents from known companies.
• Attorney fees are charged in states that require a real estate attorney to coordinate the closing and handle the title transfer.
• Courier fees are paid to cover the cost of delivering mortgage documents between parties working together to process the transaction.
• Credit reporting fees include the costs lenders pay to pull your credit reports as part of the home loan approval process.
• Escrow or closing fees are paid to the escrow company or real estate attorney that holds escrow payments and coordinates the closing meeting.
• Homeowners insurance costs are usually prepaid for the first year and added to the list of closing costs.
• Homeowner association (HOA) fees are typically calculated as a percentage of the amount due during the month of closing. This fee only applies to properties that are part of an HOA.
• Private mortgage insurance (PMI) is often required if your down payment is less than 20%. PMI protects the lender if you do not repay the loan according to the loan agreement. You can pay this as part of your monthly mortgage payment or place the annual amount into an escrow account.
• Loan origination fees may be charged by the lender for processing and underwriting the mortgage loan.
•  Mortgage or discount points are purchased by buyers in exchange for a lower interest rate mortgage at closing.
• Property taxes are typically paid six months in advance. The amount required at the time of closing is based on your local tax jurisdiction. Homebuyers should prepare for their taxes to increase over time. Like PMI, you can pay this as part of your mortgage payment each month or place the amount into an escrow account.
• Real estate agent commissions are typically paid by the seller. But in some tight markets they may be split between the buyer and the seller. If a real estate agent is not representing you in your home purchase, tell the seller. Many sellers calculate the cost of paying the buyer’s and seller’s agent into the asking price. As a result, you may be able to negotiate a lower offer since only one commission will be paid.
• Title insurance ensures the property is free from ownership issues. It’s required for lender underwriting.

There’s no need to overestimate what you can afford and underestimate how much it will actually cost when you calculate your closing costs into the total purchase price for the home. Your mortgage lender will provide a Loan Estimate as part of your mortgage loan preapproval. This document lists the estimated closing costs you’ll incur for the loan amount requested.

Several days before the scheduled closing of your loan, you’ll receive an updated document known as a Closing Disclosure. At that time, costs are finalized and the Closing Disclosure will list the actual fees you must pay at closing. Compare both documents and ask questions about any discrepancies.

Let ENB help figure your exact closing costs when you use a low-interest rate First-time Buyer Mortgage or Experienced Homebuyer Mortgage to finance the purchase of your home. Email or call us at (877) 773-6605 to learn more about how we can simplify the homebuying process.