At the end of your home financing process, before everything is finalized and you receive the keys to your new home, you’ll need to attend a closing meeting in which all necessary documents are signed and closing fees are paid or coordinated to be paid if paying through a bank transfer or wire. This can take place in person or remotely (fully remote closings are not available in all states). Closing costs can vary depending on your situation but include fees associated with originating and processing your loan, the fees of the various professionals involved in your financing process, and other insurance and tax fees. Essentially, the closing costs are what it costs to get a mortgage, but do not include any of your payments for your mortgage.
How Do I Know How Much I Will Owe in Closing Costs?
When you apply for a mortgage, the lender is required to provide you with a loan estimate within three days. A loan estimate outlines your loan terms in an easy-to-understand way. It also itemizes and provides an estimate of the closing costs you can expect to pay at the end of your home financing journey. You can expect these costs to adjust slightly by the time you actually get around to closing, however you shouldn’t see any significant differences.
As the time for closing approaches, you will receive a closing disclosure that outlines the final closing costs owed at your closing meeting. The closing disclosure will show you your original estimated closing costs and provide the differences in amounts owed. If you see any significant differences, you should reach out to your loan officer as soon as possible to discuss why this may have happened.
What Fees are Included with Closing Costs?
The exact fees you pay will vary by your situation, and will be outlined in your loan estimate and closing disclosure, however you can expect to pay at least some of the following fees as part of your closing costs:
- Application fee
- Closing fee
- Credit report fee
- Escrow deposit
- FHA mortgage insurance premium
- Flood certification
- HOA fee
- Homeowners insurance
- Lender’s title insurance
- Discount points
- Owner’s title insurance
- Origination fee
- Private mortgage insurance
- Appraisal fee
- Property tax
- Real estate commissions
- Tax monitoring fees
- Title search fee
- Transfer tax
- Underwriting fees
Who pays closing costs?
Typically, the buyer pays for most of the closing costs, however it is possible to negotiate with the seller to help cover a portion (or all) of the costs, called seller concessions. Of course, if you’re building your own home, there is no seller and you will cover your closing costs. If you’re working with sellers who are eager to sell, it could be beneficial to ask them to cover some or all of the closing costs, but in a strong seller’s market, that may be harder to negotiate. It’s also important to keep in mind that for certain loan programs, sellers can only cover closing costs up to a percentage of the mortgage amount.
Do sellers have their own closing costs?
Sellers do have their own closing costs to cover before the home financing process can be completed. These fees include:
- Attorney’s fees
- Seller’s concessions
- Escrow fees
- Outstanding HOA fees
- Prorated property taxes
- Real estate commissions
- Recording fees
- Transfer taxes
- Title insurance
Closing costs are an inevitable part of the home loan process and can be thought of as the cost of financing your home. Even if you anticipate that the seller may be able offer seller concessions, you should be prepared to pay closing costs when you begin your home financing journey.