What are mortgage closing costs?

When buying a home, everyone pretty much get’s the concept of down payment. But first time home buyers are typically shocked to learn about something known as closing costs.

 

 

So Exactly What Are Closing Costs?

These are additional costs required for the many services related to buying a house. Examples of closings costs include appraisal, credit report, loan processing costs, title company/attorney fees, title insurance, along with state and/or county recording and deed taxes.  There are also optional items here, like if you choose to pay discount points to lower your loans interest rate.

You also have something known as pre-paid items. Examples of these including paying for your first years homeowners insurance policy up-front, and a one time pre-rated property taxes that vary greatly depending on how much the homes property taxes are, and what month of the year you are buying the home. Together these two main categories make up the term ‘closing costs’.

How Much Are Closing Costs?

You will hear many people say closing costs are 3% of the homes purchase price. This has never ever been true. These costs generally run from closer to 2% of the loan amount for big loans, and easily 5% of the loan amount for smaller loans.

So why the cost differences?  About half the closing costs are a set fee for every loan, regardless of the loan amount. For example, most appraisals, credit report, lender costs, and closing fee from the title company.  The other half of the costs are based on the loan amount. For example deed taxes, title insurance, and discount points.

Have more questions about closing costs, or want an exact quote? We have answers. Let’s talk.  (651) 552-3681, or Schedule an Appointment.