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Though it’s typically the biggest cost you’ll face when you buy a house, the down payment is only one portion of your expenses. You’ll also have mortgage closing costs, which are fees associated with originating, underwriting, and closing your mortgage loan — among other things.
Here’s what to expect so you’re prepared for the mortgage closing costs you’ll pay at or before closing:
- What are mortgage closing costs?
- Some fees that make up mortgage closing costs
- How to calculate closing costs
- Do lenders have to disclose closing costs?
- Can closing costs be negotiated?
- Another way to save on costs
What are mortgage closing costs?
Mortgage closing costs include many fees for services, many of which your lender requires or provides. You’ll also have closing costs associated with your home’s title insurance policy, any attorneys or appraisers required along the way, taxes, insurance, and more.
Find Out: How Much Does It Cost to Buy a Home?
Here are some fees that make up mortgage closing costs
There are dozens of individual fees and charges that comprise your closing costs, with the exact cost of each varying based on the borrower, mortgage lender, location, and specific loan product.
Here are a few common closing costs and what you can expect to pay for them on average:
- Appraisal: Lenders require home appraisals to determine the fair market value of your home and, in turn, the amount they’re willing to let you borrow. A home appraisal generally costs around $300 to $500, but can cost significantly more.
- Attorney fees: Some states require a real estate attorney when purchasing a home. They usually charge by the hour — $150 to $350 per hour, on average — though some may have a flat rate.
- Credit report fee: The lender will also need to pull your credit report when processing your application. Although sometimes, the lender takes care of this fee themselves, it might fall on you. This fee is usually $30 to $50.
- Earnest money: This is money you can put down as part of your initial offer and apply towards your closing costs. It’ll sit in an escrow account until closing and is usually 1% to 3% of the purchase price.
- Escrow fee: This is what you’ll pay to your escrow agent or title company for their services. It’s typically 1% to 2% of the purchase price.
- Homeowners insurance: The cost depends on a number of factors, including where you live and how much coverage you choose. The average homeowners insurance policy can run you anywhere from $1,000 to $2,000 annually, and you’ll typically pay for the first year at closing.
- Lender’s title insurance: This is a required one-time charge that protects the lender in the event there are legal issues regarding the home’s title. The costs vary widely by state and the price of your home, but usually cost about 0.5% of the purchase price.
- Mortgage points: Points are optional fees you pay to the lender to reduce your loan’s interest rate. Typically, one point is equal to 1% of the home’s value. How much the point lowers your rate varies by lender.
- Origination fee: This is what you pay the lender to actually originate your loan. The origination fee ranges from 0.5% to 1.5% of your loan amount, so $1,000 to $3,000 on a $200,000 loan.
- Owner’s title insurance: This is an optional one-time fee you can pay to protect your own interest in the property. The costs vary, but expect to pay around 0.5% of the purchase price for coverage.
- Property tax: You’ll have to pay a prorated amount of property taxes at closing. The exact amount you’ll pay depends on your local property tax rate and the value of your home.
- Recording fees: These are what you pay to the local government for legally recording the new mortgage, deed, and home loan documents. The costs vary by county, but you can expect to pay between $100 to $200 in total. They may be paid by you or the seller.
- Survey fee: Your lender might require a survey to be done of your home’s lot in order to establish clear boundaries of the property. The average cost of a survey is $504.
Check Out: First-Time Homebuyer Tips: 10 Mistakes to Avoid
How to calculate closing costs
After you apply for a mortgage, your lender will send you a three-page Loan Estimate with an itemized list of every closing cost you’ll owe. It’ll also tell you how much cash you might need to close.
You can use a closing costs calculator to help better estimate the expenses you’ll need to pay at closing.
Do lenders have to disclose closing costs?
If this all sounds a bit overwhelming, don’t fret. You’ll see a lot of these costs noted on your loan estimate, which will give you an idea of what to expect well ahead of time.
Your mortgage lender is also required to give you a breakdown of all your expected closing costs at least three days before your closing date. This will come by way of a Closing Disclosure form, which will detail all the fees, charges, and taxes you’ll owe come closing day, as well as your total “cash to close.” This is how much cash you’ll need to pay to close your loan.
Learn More: Closing on a Home: How Long It Takes and What to Expect
Can closing costs be negotiated?
Many of the costs of closing a home loan are not set in stone and can be negotiated or, at the very least, shopped around for. To understand what costs you can shop for, check the original loan estimate form you received from your mortgage lender.
In the loan estimate, you should find a section titled “Services You Can Shop For.” Items listed under this header are ones you can price-shop for. If you find a lower rate for the listed services than what’s quoted, let your loan officer know so they can update your estimate accordingly.
The lender will also provide you with a Settlement Service Provider List that gives the name of at least one provider that can provide the required services (this is usually the provider the lender uses to obtain fee estimates for the loan estimate).
Another way to save on costs
Mortgage closing costs, and the costs of buying a home in general, differ depending on the lender and transaction. If you’re looking to lower your homebuying expenses, make sure to shop around. You can use Credible to get started and compare multiple lenders at once to find the right loan for you.