Closing costs are typically 2-5% of your loan amount. Larger loans over $500k are closer to 2% while smaller loans are closer to 5%. Some are set in stone, but many aren't. That means you should shop around for the lowest closing costs as well as the lowest rate.
What are closing costs?
The fees required to set up and close a new mortgage. They include everything charged by your lender, home appraiser and title company. The majority of costs are paid on closing day to the title company which then distributes the fees to each party. Important to remember that the earnest money and down payment are NOT included in the closing costs. Be sure to shop around for the best rates and fees. Your realtor can refer you to preferred lenders and title companies that are trustworthy, reliable and have affordable fees.
Types of fees:
Application Fee - $200-500. Locks your rate. NEGOTIABLE.
Origination Fee - 0-1% of loan. Fee lender charges for its services. NEGOTIABLE.
Credit Report Fee - $35-75.
Mortgage Points - 0-1% of loan. Optional upfront fee that lowers your monthly payment.
Processing Fee - $300-900. Lender fee to gather documents, coordinate with third parties like appraisers and review and approve the loan. NEGOTIABLE.
Title Search, Report and Insurance - $300-2500. Title company fee to check historical records and make sure property can be transferred to you. Lender's title insurance is required. Owner's title insurance is optional but highly recommended. **If you buy both policies, ask for a discount.
Title Fees - $500-1000. Title company fee for handling funds and facilitating closing. NEGOTIABLE.
Recording Fees and Taxes - $25-250. Charged by the county to process records.
Appraisal - $500-1000. Fee to evaluate home's value in support of your loan.
Prepaid Taxes and Insurance - $1000-5000. Your lender will require prepayment for a period of 6-12 months.
FHA/VA - 1.4-3.6% of loan. Required by govt for insurance or guarantee.
A closing cost calculator can help you budget (click HERE for a decent one). You will also receive an estimate from your lender after you are pre-approved and a disclosure of all fees right before closing.
Reduce Your Closing Costs
Lender Credits (also known as a no closing cost mortgage) - you pay higher interest but less out of pocket.
Seller Concessions - when seller pays part or all of buyer's closing costs. Works best in a buyer's market.
Roll Costs Into Loan - a refinancing option. Best if you don't plan to keep the loan long term.
Closing Cost Assistance - state housing finance agencies and local government assistance for first time or lower income buyers.
Negotiate! Shop around. Take your best offer to another lender and ask them to beat it. Don't be afraid to ask for lower costs.
Want to Learn More?
There are fantastic articles at The Mortgage Reports which will arm you to find the best mortgage for your situation.