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Closing Costs

What to Expect with Mortgage Closing Costs

When you are buying a home, there are a lot of things to think about. One thing that often comes as a surprise to people is the amount of money they have to spend on closing costs. These costs can add up quickly, so it’s important to know what to expect.

In this blog post, we will discuss the different types of mortgage closing costs and how much you can expect to pay. We will also provide some tips on how to reduce your closing costs. So, whether you are just starting the home buying process or you are close to closing, this blog post is for you!

What are closing costs?

Closing costs are the fees charged by lenders, title companies, and other parties involved in the home buying process.

These fees can range from a few hundred dollars to several thousand dollars. The exact amount will depend on factors such as the type of loan you are getting and the price of the home.

How much are closing costs?

As a general rule, you can expect to pay between two and five percent of the purchase price of your home in closing costs.

So, if you are buying a $200,000 home, you can expect to pay between $4000 and $10000 in closing costs. Of course, there are always exceptions to this rule.

If you are getting a VA loan, you may be able to avoid paying certain closing costs.

What is the average closing cost to refinance a mortgage?

The average closing cost to refinance a mortgage is about three percent of the loan amount.

So, if you are refinancing a $200,000 loan, you can expect to pay $6000 in closing costs.

Can you deduct closing costs?

In most cases, you cannot deduct closing costs from your taxes.

However, there are a few exceptions. For example, if you are refinancing a rental property, you may be able to deduct some of the closing costs.

What is included in closing costs?

A large chunk of your closing cost will typically be your 20% down payment and the loan origination fees. These costs are costs associated with the property’s purchase but outside of the property’s cost.

There are a variety of different types of closing costs. Some of the more common ones include:

  • Origination fees: These are charged by the lender for processing your loan. They can range from one to three percent of the loan amount. Loan origination fees are expressed as “points.” A buyer can purchase these “points” to bring down the interest on the loan.
  • Appraisal fee: This is a fee charged by the lender to have an appraiser assess the value of the property you are buying.
  • Inspection fees: If you choose to have a professional inspect the property, you will be responsible for this fee.
  • Title insurance: This insurance protects you in case there are any problems with the title to the home you are buying
  • Lender’s title insurance: This is insurance that protects the lender in case there are any problems with the title to the home you are buying.
  • Escrow fees: These are fees charged by the escrow company for their services.
  • Recording fees: These are fees charged by the county for recording the deed to the property.

This is by no means a complete list, but it gives you a solid perspective on what closing costs to expect.

All these closing fees are required by law to be presented to the buyer within 3 days before the set closing date. It is called a Good Faith Estimate of (GFE). You will see all the fees and charges listed, as well as your total estimated closing amount to bring to the table.

Are realtor fees included in closing costs?

No, realtor fees are not included in closing costs. Realtor fees are paid separately by the buyer or seller at the time of closing.

Who pays closing costs?

Sellers also have to pay their own share of closing costs, and the largest one is often the broker fee.

Buyer’s typically do not pay the real estate broker they used to help find them the property. The seller’s broker splits the fee with the buyer’s broker.

In a buyer’s market, some sellers will be willing to negotiate some of the buyer closing costs or offer incentives to quickly sell their property.

It is safe to assume a 3%-5% closing cost based on the home’s purchase price. For example: $300,000 home x .05 = $15,000 total highest closing cost.

It is wise to prepare for the highest amount possible. It is better to have extra cash on hand than be short. Keep in mind that your closing cost is in addition to your down payment.

Are closing costs included in mortgage?

Closing costs are paid in addition to the purchase price of the home. They are not included in your mortgage.

You will need to have cash on hand to pay for your closing costs at the closing table.

The good news is that you can wrap your closing costs into your mortgage if you don’t have enough cash on hand . This is called a “no-cash” transaction.

You will need to talk to your lender about this option and see if it is available to you.

Can you roll closing costs into mortgage?

When refinancing, you may be able to roll your closing costs into the new loan. Check with your lender to see if this is an option for you.

Are closing costs included in down payment?

No, closing costs are not included in the down payment. The down payment is the money you pay upfront to purchase the home.

Closing costs are paid in addition to the down payment at the closing table.

How can I reduce my closing costs?

There are a few different ways you can reduce your closing costs.

One way is to shop around for a lender who is willing to give you a “no-closing cost” loan. With this type of loan, the lender will cover all of your closing costs in exchange for a higher interest rate on your loan.

Another way to reduce your closing costs is to negotiate with the seller. In some cases, the seller may be willing to pay some of your closing costs.

If you are buying a home through a real estate agent, you can also ask them to negotiate with the seller on your behalf.

Day of Closing

You will be required to bring a certified bank check at closing, but in the era of COVID-19, a wire transfer will be accepted. Find out the details of closing from your title company or closing attorney.

Especially with COVID-19 restrictions in place, the real estate closing landscape has had to adapt just like the rest of us in the way we do business and work.

Final Thoughts

There are a couple of items that will be up to you to arrange and pay for out of pocket outside of the title company or real estate attorney closing costs that you may want to consider.

These are not large ticket expenditures but can be worth their weight in gold. One is a pest inspection. Some states or government-backed loans will require this. It costs about $100.

The other is a home inspection. NOT to be confused with an appraisal inspection. A home inspector checks for compliance issues and structural hazards or defects. This includes electrical and plumbing. He works for YOU. He or she is also an integral part of your real estate dream team.

You can ask your real estate broker for a referral.

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