Closing Costs Explained
When you are in the process of obtaining a mortgage loan you will not only need to provide a lender with a down payment on the home, but also a variety of other fees called closing costs. Closing costs are generally paid by the homebuyer at the time of closing, but sometimes can be rolled into the loan amount, and other times a portion of the closing costs can be paid by the seller.
Closing costs vary depending on certain factors such as the loan amount, the type of loan, length of the loan, etc. You can expect to pay anywhere from 2-5% of the purchase price of the home in closing costs, which covers the expenses of both the lender as well as third party services such as inspections and appraisals. When you apply for a loan your lender will provide you with a Good Faith Estimate (GFE) which will outline all the costs that you will be charged.
Some of the items you may see on your GFE include:
- Credit Report Fee – fee charged by credit reporting agency to obtain a copy of your credit report to verify your credit history.
- Attorney Fee – fee charged by attorney who prepares and reviews the closing documents
- Inspection Fee – fee charged for inspecting the property for any potential problems that could take away from the property value
- Discount Points – fees paid in exchange for a lower interest rate (1 point is equal to 1% of the loan amount)
- Appraisal Fee – fee required to determine the property value of the home through an appraiser
- Survey Fee – fee for verifying the property lines on your property
- Title Fees – title fees will include the title search which is a background check on the title to verify there are no problems associated with your ownership of the property. Title fees can also include title insurance.
- Recording Fee – fee that covers recording the change in ownership
- Underwriting Fee – fee covers the cost of evaluating your mortgage application for approval