Closing costs are fees associated at the closing of a real estate transaction. The closing point is when the title of the property is transferred from the seller to the buyer. Closing costs are incurred by either the buyer or seller. What charges go into your total closing costs? Closing costs vary widely based on where you live and the property you buy. They often include things such as:
You can expect to be charged fees for running your credit history and report, loan originations fees (lenders charge these in order to process your paperwork regarding the loan), any lawyer’s fees, fees for inspections that you had to pay (or that the lender wanted), any discount points (these are fees you pay in order to get a lower interest rate), fees for the appraisal, fees for surveys (which cover the cost of verifying lines of the property), title insurance fees (this protects the lender in case the title for the house isn’t cleared), fees for searching the title (background checks must be done to make sure there aren’t any lingering debts on the mortgage, or tax liens on the house), escrow deposit fees (which will pay for a few months of your property taxes and your PMI), an inspection for pets, and a “recording fee,” which is a fee that covers the cost os analyzing your mortgage application. See: Closing Costs.
Sound like a lot of money? You bet. This is why when people think they can afford a house, they often don’t realize that they’re going to have to spend a lot of money for more things before they even step foot in the new house.
Usually, buyers will pay between three to six percent of the total price of the house in closing fees. This is not a small chunk of change, especially if the home you’re about to buy is an expensive one. Note that your bank lender is required to give you a GFE, also known as a good faith estimate. This is an estimate of what you’re going to have to pay regarding the closing costs. They must give this document to you within a week of applying for the loan. Keep in mind,t his is an estimate. These fees are subject to change at any time.
The bank also will give you what is called a HUD 1 settlement statement. This is a document that outlines the details of the closing fees. You should compare this document to that of the GFE and see if it all adds up. Many times, you’ll find that some of these fees are negotiable.
You can sometimes avoid some of these fees by getting what is called a “no-closing cost mortgage.” This means that you won’t pay any of the closing costs when the mortgage closes. Usually when banks offer deals like this, they hide high interest rates on the loan, if you don’t pay costs. They also might hide those fees into the total mortgage owed. This means you end up paying interest on the closing costs. Sneaky, right? Lastly, you are able to negotiate with your seller on who pays the closing fees. The sellers will sometimes agree to take the hit.