What Are Closing Costs?
What Are Closing Costs? That question is often asked by first time home buyers and people not necessarily familiar with the home buying process. Closing costs are all of the costs and fees paid at the end (closing) of a real estate transactions. Both buyers and sellers incur closing costs as part of their transaction.
Lenders are required by law to give you a Loan Estimate, which will include what the closing costs on your home will be, within three days of receiving your loan application. But these are just an estimate, and many of the fees listed can change.
At least three business days before your closing, the lender should give you Closing Disclosure statement, which outlines closing fees. Compare this to your Loan Estimate and ask the lender to explain what each line item on your closing costs is and why it is needed.
Buyers closing costs can vary anywhere from 3-6% of the cost of the home. The wide variance is usually due to taxes. So what charges are included in closing costs? Here are some of the basics-
- A fee for running your credit report.
- A loan origination fee, which lenders charge for processing the loan paperwork for you.
- Underwriting fee, which covers the cost of evaluating a mortgage loan application.
- Processing fee
- Discount points, which are fees you pay in exchange for a lower interest rate.
- Appraisal fee.
- Title Insurance- which protects the lender in case the title isn’t clean.
- Escrow deposit, which may pay for a couple months’ property taxes and private mortgage insurance.
- Escrow or settlement fee
- Notary Fee
- Pest inspection fee.
- Recording fee, which is paid to a city or county in exchange for recording the new land records.
100 Percent financing covers the entire amount of the purchase price, but there are still closing costs involved in every transaction. You can ask a seller to contribute toward your closing costs to lower your out of pocket even further. You can also search the internet to find agents that will offer a home buyer rebate with a portion of their own commission to go toward your closing costs. There are many agents and companies out there that do just that.
Some home buyers have been able to purchase a home with no money down whatsoever by using a 100 percent financing program and by receiving closing cost assistance from either a seller or real estate agent or both.