Tips & News

These costs can come as an unpleasant surprise if you’ve calculated your budget without factoring in the costs of various documents and additional fees from the lender. Here’s a short guide on what closing costs are, and how to factor them in when you’re applying for a home loan.

What Are Closing Costs?

Closing costs refer to all the fees and additional costs that borrowers must cover to finalize the mortgage application process. The costs are present no matter if you’re applying for a loan to get a new home, or just want to refinance.

Some closing costs fall to the home seller to cover, but in general, most of the bulk costs will be covered by the buyer.

The average closing costs can be around 2% or even 5% of the loan amount, and most homebuyers prefer to pay for them out of pocket right in the beginning as a one-time expense. You can also fold them into your loan if the lender agrees and if you do not have the funds to cover them out-of-pocket, but doing so will mean you’ll need to pay interest as well.

Ideally, your lender should explain exactly what sort of closing costs you are in for before the settlements. They issue a Closing Disclosure document which will include all the fees and additional services you have to pay for. It’s a good idea to take this document, which is included in the Loan Estimate, and compare the costs of different lenders to see if you’re getting a good deal.

What Types of Closing Fees Should You Expect?

There are several types of closing costs you may need to cover:

• Property fees - The appraisal and the home inspection are two important things the lender will ask for, and they are usually covered by the borrower.
• Loan fees - These are a myriad of different costs that go into the loan-approval process, such as the application fee that covers the administrative expenses of the lender, to prepaid interest, brokers fees, and even attorney fees in states that require an attorney to be present at the closing of a real estate purchase.
• Insurance fees - You’ll also need to cover the insurance costs at this stage, whether it’s private insurance or those governed by various housing programs like FHA loans. Some lenders may require you to pay the first year’s insurance premium upfront, while others may ask you to cover the premium for the entire span of the loan.
• Additional taxes - Buyers are usually required to cover two month’s worth of property taxes at closing. There could also be additional fees depending on the homeowner’s association, such as an upfront payment of the annual fee.
• Title fees - It’s important to know the house you are buying does not come attached with any outstanding debts or that the person selling it truly owns the property. This is established through a title search fee, which can cost around $200.

Contact Us Today

If you are confused about closing costs, not to worry, that’s what the loan officers at CSMC Mortgage are here for! They will help walk you through every step of the loan process.

Reach out to us online or call our office to find out more.