What are mortgage closing costs?

Mortgage closing costs

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Your down payment can be one of the biggest upfront costs you face to buy a house, but it is not the only one. You will also have closing costs – expenses associated with initiating, registering and closing your mortgage.

These and your down payment are due before you can finalize your mortgage and get the keys to your new home, so preparing for this is essential.

What costs can you expect exactly and how can you calculate them? Here’s what you need to know.

What are mortgage closing costs?

Closing costs include many separate fees, including lender side fees, title fees, escrow fees and more.

Here’s an idea of ​​some of the closing costs you might see on your mortgage:

  • Lender fees: These are fees paid to the mortgage lender and others involved in the mortgage process. They include things like origination fees, points, underwriting fees, the cost of retrieving the borrower’s credit report, and appraisal fees.
  • Ownership and Settlement Fees: These are expenses paid to the title company and others involved in closing your loan. Examples of these include title insurance policy fees, title search fees, and registration fees, which cover the costs of registering the transaction with the county.
  • Prepaid Items and Escrow Fees: These are things you pay for upfront, like your home insurance, mortgage insurance, and property taxes. The funds are placed in an escrow account, which your mortgage company uses to pay those bills each year. You will also need to prepay part of your mortgage interestwhich covers the period between the closing of your loan and the payment of your first mortgage payment.

Typically, the buyer pays all or most of the closing costs. However, there are certain scenarios in which sellers can participate.

How much are closing costs?

According to closing platform ClosingCorp, closing costs (without prepayment or escrow fees) average about $7,000 nationwide for a single-family property. It is important to note that these costs vary widely by lender and location. In Washington, DC, for example, the average closing cost is nearly $30,000.

The best way to determine what you will owe in terms of closing costs is to consult the loan estimate provided by your mortgage lender. These detail all the fees and costs associated with your mortgage and can be a good way to compare quotes from different companies.

Your closing costs may increase between receiving your loan estimate and closing your loan, but only in certain circumstances — with many increases capped at 10%, according to the Consumer Financial Protection Bureau (CFPB). . However, costs not controlled by the lender – like prepaid insurance or third-party fees, for example – can increase more than that.

Either way, any increases will be noted on your closing disclosure form, which mortgage lenders must provide to you at least three business days before your closing appointment.

How to reduce (or avoid) closing costs

You can’t really avoid closing costs when buying a home, but you may be able to reduce them. There are several ways to do this. You can:

  • Compare the prices: Shop around with your mortgage lender and third-party service providers. (Once you’ve chosen a lender, see the “Services You Can Buy” section on page 2 of your loan estimate. These are the third-party providers you can research.)
  • Get pre-approved with multiple mortgage lenders: Each lender will give you a loan estimate, which you can use to compare closing costs and lender fees.
  • Talk to your real estate agent: Depending on your market, you may be able to negotiate to have the seller pay some of your closing costs.

If you are considering asking the seller to contribute, talk to your mortgage lender first. There may be limits depending on your loan program.

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