Closing Costs

What are Mortgage Closing Costs?

It’s finally here—the day you get the keys to your new home! When you attend your mortgage closing meeting, you’ll need to be prepared to bring a check for more than just your down payment. At this meeting, your lender will also collect the closing costs related to sealing the deal. These fees usually cover things like appraisals and inspections, loan applications, and originating and underwriting the loan.

Let’s look at closing costs in the mortgage process to understand how they work and answer some frequently asked questions.

Frequently Asked Questions About Closing Costs

What are Closing Costs?

Closing costs are the expenses a buyer pays to complete the purchase of a home. They can represent a range of fees, including costs associated with appraisals and inspections, loan applications, and originating and underwriting the loan.

What is Included in Mortgage Closing Costs?

Closing costs include both property-related fees (associated with verifying the home’s value) and mortgage-related fees (associated with preparing the mortgage). Some common property- and mortgage-related fees include:

• Appraisal fee: This covers the work a licensed appraiser does to determine the value of the home. This fee is often paid before closing day.
• Home inspection fee: This fee goes to the home inspector, who evaluates the home to identify any problems. This fee is also usually paid before closing day.
• Title insurance: Borrowers are required to obtain title insurance in case there are issues with ownership after the sale of the home. Title insurance can protect the lender or the borrower.
• Application fee: Some lenders charge a fee to process your loan application.
• Origination fee: This is a fee charged by the lender for creating the loan. The cost is typically 0.5 – 1% of the amount you borrow.
• Underwriting fee: This fee—sometimes called an administrative or processing fee—covers the cost of verifying your loan qualifications and eligibility.

How Much are Mortgage Closing Costs?

The amount you pay in closing costs will vary but commonly depends on three key factors:

1. The price of the home
2. The location of the home
3. Whether you’re buying or refinancing

The specific closing costs and fees you’ll pay depend on your lender, the type of loan, the terms of the real estate transaction, and the state you live in. On average, closing costs may be about 2 – 5% of your loan amount. The fees will appear on the Good Faith Estimate that lenders must provide as part of the loan application process.

Marine Credit Union offers a variety of free budgeting and financial planning tools. Use our free online calculator to calculate your home closing costs.

If you have low or bad credit, these costs can add onto an already sensitive mortgage repayment situation. It is important you understand the entirety of your financial responsibility for a mortgage before taking out a mortgage loan with bad credit.

When are Closing Costs Paid?

You’ll pay closing costs when you attend the closing meeting to complete the purchase of your home. At this meeting, your lender will take your down payment and any additional costs you need to pay for closing.

Who Pays for Closing Costs?

You might wonder if the buyer or the seller of the home pays for closing costs in a real estate transaction. Usually, the buyer is responsible for paying the majority of the closing costs. The seller also incurs fees as part of the transaction, such as transfer taxes and attorney fees. The amounts the buyer and seller pay will vary from transaction to transaction.

How to Get Closing Costs Waived?

It’s difficult to avoid closing costs altogether, but there are some ways to negotiate or reduce the fees you’ll face at closing.

• Consider lenders that offer discounts: You may be able to work with a mortgage lender that doesn’t charge an origination fee or offers a discount on other closing costs.
• Apply for down payment assistance: If you’re a first-time homebuyer, you may be able to apply for down payment assistance and other grants that can help cover the costs of getting a loan.
• Look for a no-closing-cost loan: You may see ‘no-closing-cost loans’ advertised—but beware. Often, the closing costs are rolled into the loan’s principal, so you end up paying them back, with interest, in your mortgage payments.
• Ask the seller to contribute: If you’re buying a home in a buyer’s market, the seller may be willing to contribute to closing costs to seal the deal.

Payment Assistance

There are many state and local housing programs that are offered. HUD has a comprehensive list of programs for each state. Greenpath homeowner counseling also offers education and guidance for mortgages, which includes payment assistance programs.