Everything that's Included During Closing Cost

Dated: October 13 2020

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A home is one of the biggest and most exciting purchases that you’ll make in your life. Most buyers (rightfully so) focus their attention on the down payment, monthly mortgage costs, and the price of the home. But there’s one important cost that many buyers overlook: closing.

Closing costs can vary, but they generally run from 3%-5% of the loan amount. With the U.S.’s median home price sitting at $313,200, you’re looking at $8,456.4 to $14,094 in closing costs if you put down 10%.

In other words, closing costs can be hefty and, for many buyers, takes them by surprise.

So, why are closing costs so high? What’s included?

What’s Included in Closing Costs?

Closing costs cover a number of things associated with the processing and underwriting of your loan.

Some of the most common closing costs include:

Appraisal

Lenders require an appraisal for a few reasons:

·         They want to make sure the home is worth what you want to borrow

·         They want to ensure they can recover the value of the home if you default on the mortgage

The cost of an appraisal can range from $300-$400.

Home Inspection

Most lenders will also require an inspection, especially if it’s a government-backed loan like an FHA. An inspection ensures that the home is structurally sound and fit for living.

If an inspection turns up some serious issues, this may allow you to negotiate a lower sales price or even back out of the deal.

Inspection fees can range from $300-$500.

Loan Origination

The loan origination fee is a big one, and it goes by a few different names: administrative fee, underwriting fee, or processing fee. As the name suggests, this is a fee the lender charges for evaluating and preparing your loan. It may cover a variety of things, including:

·         Attorney fees

·         Document preparation

·         Notary fees

Typically, loan origination fees are about 0.5% of your loan amount.

Application Fee

The application fee covers costs associated with processing your loan request and includes things like administrative costs and credit checks.

Mortgage Insurance Application Fee

If your down payment is less than 20% of the purchase price, you will need to have private mortgage insurance or PMI. There’s a fee for applying, and it varies from one lender to the next.

FHA, USDA or VA Fees

If you choose a government-backed loan, such as an FHA, USDA, or VA, you will need to pay fees for these loans.

·         FHA requires FHA mortgage insurance (paid monthly) and an upfront premium payment of 1.75% of the loan amount.

·         USDA and VA loans require upfront guarantee fees. The USDA guarantee fee is 1%, while the VA guarantee fee can range from 1.25%-3.3%.

Property Taxes

At the time of closing, lenders usually require that you pay two months of property taxes.

Homeowner’s Insurance

Lenders require all borrowers to have homeowner’s insurance, and most will also require that you purchase your policy before closing.

Title Fees

When purchasing a home, a title search is conducted to make sure that:

·         The seller actually owns the property

·         There are no outstanding liens or claims on the property

Title fees can vary, but they’re typically around $200.

These are the most common closing costs, but depending on the lender and the type of loan you’re taking out, there may be other fees. Your lender will supply you with a complete list and breakdown of costs prior to your closing date.

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