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What Makes Up Closing Costs?

By on November 11, 2013 in Mortgage Videos

Learn about additional fees that will be tacked on at closing such as closing costs. They vary per location, and are due before moving into your new home. When you apply for a home loan, your lender should offer you a Good Faith Estimate (GFE) of your potential closing costs. Because many buyers are concerned mainly about the principal and interest, they fail to see the substantial additions of the closing costs. In general, the costs can range from 2 to 5 percent of the property’s value. Why are they so expensive? These costs are numerous if you read the fine print.

What Are Closing Costs?

The home buying process includes many different fees, including paperwork creation, credit checks and appraisals. Because you are the buyer, these costs are your responsibility. The seller does not typically cover these costs because they are simply transferring the property to you. In special cases, the seller may pay some of the fees as part of the sale negotiation, but it is not a common occurrence.

Common Inclusions

Each home has slightly different fees associated with it, but some of the most common costs occur with every sale.

  • Appraisal Or Inspection Fee

Lenders need an accurate picture of the property’s current value by using a certified inspector. These inspection companies are third parties not employed by the lender.

  • Underwriting Fee

The lender may use several different loan officers to evaluate your mortgage application. Checking your employment, checking accounts and references takes time and money. This fee covers all the application labor.

  • Escrow Deposit

Your property taxes and mortgage insurance must be continually paid during the property’s transition between seller and buyer. This deposit keeps you current with all bills associated with the home.

  • Loan Origination And Credit Check

The loan application runs through many hands, including other financial entities if necessary. Loan origination fees cover lender and financial officer evaluation periods. Your credit check is crucial to determine if a loan is even possible.

  • Other Fees

Recording, pest, title search, survey and attorney fees are often listed in closing costs as well. Each loan is unique, however, making it critical to read all the loan documentation before signing any agreements.

Expensive Fees Depend On State

Closing costs are expensive because each state has different fee structures based on property values, location and several other factors. For example, a rural, one-bedroom cottage in the Midwest has cheaper closing costs than an urban dwelling in Downtown Los Angeles. Closing costs in high end areas may even top 5 percent.


About the Author

About the Author: Jessica Lucas is the managing editor for Mortgage Home Base, a top real estate finance blog dedicated to helping borrowers and home buyers understand the home loan process. Follow Jessica on Google +, and share your comments here. .
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