September 25th, 2019 4:38 PM by Jackie A. Graves, President
step before getting the keys to your new home is signing for a mortgage, and
that means it’s time to settle up those expensive closing costs.
costs are the thousands of dollars in fees associated with a mortgage,
typically amounting to 2 percent to 5 percent of the loan principal. There are
various closing cost components and they vary from state to state. Some
closing-related items can be negotiated by a consumer.
costs include an appraisal, credit check and title search. When people
refinance a mortgage or obtain a home equity loan or home equity line of
credit, closing costs have to be paid again.
breakdown of typical closing costs and what they cost.
What are the fees associated with closing costs?
Appraisal fee: The appraisal fee pays for a licensed
professional to determine what the home is worth before a lender will extend a
mortgage offer. Estimating the market value of a single-family home will
typically range from $300 to $450 or more for a larger home.
Credit report fee: The credit report fee is what the
lender charges to check your credit score and obtain a credit report. The fee
is $25 or more per individual borrower on the loan.
Origination fee: Lenders sometimes charge a fee for initiating the loan. It
can range up to about $125.
Application fee: Some lenders charge a fee of several hundred dollars to
process the application.
Title search: If you’re buying other than a new property, lenders will
send someone to search local property records for the title of the home to make
sure there aren’t any issues with ownership or liens. The fee is around $450.
Title insurance: Lenders require obtaining title insurance in case there are
issues with ownership after the sale. This protects the lender and the cost is
usually 0.50 percent to 1 percent of the loan amount. The homeowner may wish to
purchase title insurance to protect their financial interest in the property
and that’s an additional cost.
fee: This may also be called an administrative or processing
fee and it covers costs to evaluate and verify your mortgage. This might be
around 0.5 percent of the loan amount.
homebuyers will pay 2 percent to 5 percent of the purchase price of their home
in closing costs, says Jackie Boies, senior director of housing and bankruptcy
services for Money Management International, a Sugar Land, Texas-based
nonprofit debt counseling organization. For a $200,000 mortgage, in addition to
your down payment, you should expect to pay another $4,000 to $10,000 in
cities and states can charge additional fees.
Purchasing a home in Chicago, for example, means a transfer tax paid by the
buyer of $7.50 per $1,000 sales price, says Esther Phillips, senior vice
president of Chicago-based Key Mortgage Services.
How to avoid some closing costs
can’t avoid paying all the closing costs, there are some that can be negotiated, potentially saving you money. Shop
mortgage lenders to compare these fees, some of which vary by lender, Boies
fees are not set in stone and the lender has some latitude to adjust them, but
you’ll need to ask about each one individually,” Boies says. “If a fee isn’t
clear, ask the lender what it covers specifically and if it doesn’t make sense,
ask for the fee to be waived.”
Do sellers pay closing costs?
some fees are traditionally paid by the buyer and some by the seller, these
fees can be negotiated, depending upon the market.
seller is urgent about selling the home, he or she may be willing to take on
more of the (buyer’s closing) costs,” Boies says. Conversely, in a buyer’s
market the seller may be more willing to pay some of the buyer’s closing costs.
How to prepare for closing costs
option to prepare for closing costs is consult a
lender before you start looking at homes to understand what all the costs will
be based on the type of property you’re buying, says Phillips. That’s why a mortgage preapproval is recommended.
number of factors, such as the type of loan, type of property, type of
occupancy and credit score, determine what the closing costs may be, try to be
as specific as you can with the mortgage providers, says Brett Warren, director
of residential mortgage lending for Hyperion Bank in
costs are often higher than most borrowers initially assume they are,” Warren
for closing costs in addition to the down payment is also helpful, says Kurt
Westfield, a managing partner at WC Equity Group, a Tampa, Florida-based real
estate services company.
is to be patient and prepared since the homebuying process can be lengthy.
rush into what will likely be the largest purchase of your life,” Boies says.
“Many borrowers are unprepared for the actual cost of purchasing a home and
deplete their savings to cover the closing costs.”
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