Understanding Your Closing Costs  

With all the expenses involved in finalizing your home purchase, it’s easy to overlook the additional closing costs you’re responsible for. Beyond your down payment, loan principal, and interest rate, closing costs are additional fees that are involved in finalizing your mortgage. If you’re a homeowner ready to sign for your new home or investment property, Innago’s free closing costs worksheet can help ensure that you’re aware of all the different closing costs and are prepared to pay them.  

What Are Closing Costs? 

Mortgage closing costs are additional fees that prospective homeowners are responsible for as they close on their home and finalize their mortgage. Closing costs is a blanket term that covers a variety of different fees, taxes, and miscellaneous expenses. These fees, paid during the closing process, range from loan origination charges to discount points to private mortgage insurance. 

You pay closing costs when you first buy your home, though these loan costs are also required when you refinance your mortgage.  

How Much Are Closing Costs? 

How much are closing costs? A typical closing cost breakdown is around 3% to 6% of the loan amount. However, there are other factors that determine how much you’ll pay, including the type of mortgage, the property’s location, and the terms you’ve reached with the seller of the property. Lenders must provide you with a loan estimate including your estimated closing costs within three days of your loan application to ensure transparency. However, if you’re a long-term planner, you may want a rough estimate before you apply. That’s where it’s helpful to use a calculator or closing costs worksheet to estimate your closing costs. 

What are Some Common Closing Costs? 

There are a variety of fees that you could find yourself responsible for on closing day. Let’s break down a few of the most common ones: 

• Loan Origination Fee: A fee charged by the lender for processing the loan application, usually a percentage of the loan amount. 

• Appraisal Fee: The cost of having the property professionally appraised to determine its market value. 

• Title Search Fee: A fee to review public records to ensure the property’s title is clear of any liens or legal claims. 

• Title Insurance: Protects the buyer and lender from potential legal claims against the property’s title. 

• Attorney Fees: Fees paid to real estate attorneys for reviewing and managing the legal aspects of the transaction, such as contracts and the title. 

• Escrow Fees: Fees paid to the escrow company that handles the funds and documents involved in the transaction to ensure both parties fulfill their contractual obligations. 

• Recording Fees: Charges for filing the deed and mortgage with the appropriate government office to make the sale public record. 

• Homeowner’s Insurance: A premium for insurance coverage that protects against damage to the property, often required by the lender before closing. 

• Property Taxes: Depending on the time of year, buyers may need to pay a portion of the upcoming property taxes at closing. 

• Private Mortgage Insurance (PMI): Required if the down payment is less than 20% of the home’s value, PMI protects the lender in case the borrower defaults. 

• Points: Optional upfront payments made to the lender to reduce the mortgage interest rate (typically, one point costs 1% of the loan amount and lowers your interest rate by 0.25%). 

These costs vary by location and type of loan, and buyers should always check their closing disclosure for a detailed breakdown. 

Seller Concessions 

While buyers are typically responsible for most closing costs, there are circumstances in which the buyer can ask the seller to pay for a portion of the closing costs. These seller concessions require a mutual agreement between the buyer and the seller, and they are generally offered by sellers to sweeten the deal of finalizing a sale on an earlier date or at a higher price than they typically would be able to.  

The portion of the closing costs that the seller would end up contributing is regulated depending on the kind of property being sold. Across all loan types, however, the portion of the loan the seller concedes is low, staying in single-digit percentage points. For a more detailed look at the different regulations and rules concerning seller concessions, read our article on it here. 

Working with a Real Estate Professional 

If you’ve been guided through the home buying process by a real estate agent, we recommend having a conversation about closing costs early in the process, so you aren’t taken by surprise by any fees. Having another set of eyes is always helpful. Real estate professionals who have familiarity and experience can better advise you how much to set aside for these fees. You can also use a closing costs calculator to help you get an informed estimate of your final costs. 

Conclusion 

Buying a home or investment property is a long process with many moving pieces. Innago’s free buyers estimated closing costs worksheet can help you approach closing day with an accurate assessment of all your financial responsibilities.