Mortgage Closing Costs: What You Need to Know

Don’t let it happen to you: You’ve found the perfect home, you have a decent down payment and a solid credit rating, and you’re ready to purchase; then you see the list of closing costs on your loan estimate, and you have no idea how to pay them. You’re not alone. Many first-time homebuyers overlook these closing costs when saving up to buy and can be thrown for a loop when they see how much more they’ll have to pay.

“Mortgage closing costs” is a broad term for various fees and expenses that the buyer must pay before their home loan goes through. Learn about the most common closing costs and how much you can expect to pay.

Types of Mortgage Closing Costs

Home purchases have many moving parts, all of which need to be taken care of before the transaction is complete. Here are some typical closing costs you’ll likely encounter:

Lender Fees

Mortgage lenders will charge applicants for administrative costs, such as reviewing and underwriting the loan, credit report fees, and more.

Origination Fee

An origination fee is another fee paid to the lender to obtain the mortgage. It is usually charged as a percentage of the total loan, typically around 1%.

Property Appraisal Fee

A third-party appraisal company will estimate the property’s fair market value, which determines your loan-to-value (LTV) ratio.

Property Taxes

A buyer is usually responsible for paying property taxes up front, from the closing date through the end of the tax year.

Title Search

A title search company will research the property and help ensure no problems with the title, such as ownership discrepancies or outstanding liens.

Title Insurance

At the least, you will likely be required to pay for the lender’s title insurance policy; you might also want to purchase a policy for yourself. Title insurance protects case problems arise in the future that were not detected during the title search.

Title Transfer Costs

Transferring a property title is a complicated bureaucratic process. You will have to pay government filing fees, notary fees, escrow fees, and more. An attorney or escrow agent typically handles this work.

Homeowner’s Insurance

You’ll be required to carry homeowner’s insurance for the duration of your loan. Some lenders will require that you pay upfront for one year of coverage.

How Much Are Mortgage Closing Costs?

Mortgage closing costs will vary depending on your lender, the property you’re buying, and other factors. Most buyers will pay between 3% and 6% of the purchase price in closing costs. For a $200,000 home, the total would typically run from $6,000 to $12,000. These costs usually must be paid in cash before closing.

Plan for Your Mortgage Closing Costs

The main lesson here is don’t be caught off guard by mortgage closing costs, as they represent a big part of your home-buying expenses. If you are a first-time homebuyer, some programs may help you reduce the total amount.

The best way to learn more is to meet with a trusted mortgage lender and ask questions. Make an appointment today to speak to a member of our team.