If you’re in the market for a new home, don’t forget to budget for closing costs! This includes all fees and charges incurred while officially transferring a property from one owner to another.
Here’s all you need to know about closing costs:
How high will my closing costs be?
Closing costs usually amount to 2-5 percent of the home’s price. For example, if you’re purchasing a $130,000 home, your closing costs can be anywhere from $2,600 to $6,500.
What kind of charges can I expect as part of my closing costs?
- Application/Underwriting/Origination fees: Compensation for the administrative costs associated with processing a mortgage loan.
- Appraisal: Covers the fee of a professional appraiser to provide your lender with an estimate of your home’s true value.
- Attorney fee: In some states, the closing documents must be reviewed by an attorney before they become binding. This charge covers the attorney’s fee.
- Closing fee or escrow fee: The cost of the title company, escrow company or attorney for facilitating the closing.
- Credit check: Some lenders charge a fee to examine your credit history.
- Escrow deposit: You may be asked to make your initial escrow deposit at closing, to ensure the financial institution has the funds to pay property taxes and/or mortgage insurance for the first twelve months.
- Home inspection: The cost of a professional inspection of your entire home and property.
- Homeowners’ insurance: Many lenders require you to pay the first year’s worth of homeowners insurance premiums prior to closing.
- Lender’s title insurance: Title insurance insures the outstanding balance of a mortgage in the event there is a financial loss due to a defect in the title to the property.
- Prepaid interest: Most lenders require buyers to prepay the interest that will accrue from the day of closing until the date of the first mortgage payment.
- Primary Mortgage Insurance (PMI): If you need to pay PMI on your loan, the first month’s premium is due at closing.
- Title fees: This covers the cost of a title search, in which your lender hires a title company to look for possible legal claims on your property.
Should I choose the “no-closing-costs” option?
Before signing up for a no-closing-cost loan, it’s important to understand that there’s no such thing as a mortgage without closing costs. In a no-closing-costs loan, these fees will could be rolled into the mortgage. In this scenario, you would be paying interest on your closing costs throughout the life of the loan. Also, lenders usually raise the interest rates on no-closing-costs mortgages.