The names lenders use for different closing costs vary greatly, so don’t be afraid to ask questions if you’re not sure what something is. Knowing exactly what you’re paying for is important so you can truly compare loan offers.
If you’re buying a new home, you’ll want an unbiased third party giving you a number for what the home is actually worth. (In fact, lenders require an appraisal to make sure you’re not paying more than the home is worth.) Appraisers compare the home to recent sales in the area to come up with a figure for your home.
Appraisals don’t always get lumped in with closing costs. Sometimes other parties will pay for them. If you’re on the hook for it, prepare to spend around $500, though the size and location of the property can cause the price to vary. You may also need to pay this fee well before closing.
An origination fee is essentially an application fee with lenders. It’s an upfront fee, and the amount is determined as a percentage of the overall loan. So, the more you borrow, the higher this cost will be. You can expect to pay between 0.5% and 1% of the loan for your origination fee. This fee can also be called a processing, underwriting, or application fee.
When you’re shopping around for a mortgage, a lot of effort goes into each lender’s estimate. It’s not as easy as typing out a quick email; the reports are arduously prepared and customized based on your credit score and financial status.
You’ll encounter document preparation fees for most of the paperwork that’s prepared ahead of a sale. These fees are typically $100 or less, but it varies.
It’s hard to know a property’s history with absolute certainty, and that’s where title insurance comes in handy. Title insurance protects both you and the lender if the home has any liens, outstanding lawsuits, or other title problems. Title insurance isn’t mandated by law, but your lender will almost certainly require it.
Any potential lender is going to want to check your credit report before issuing a loan. While some lenders pick up the credit report fee themselves, you should be ready to cover the cost. Luckily, the costs aren’t extreme—it shouldn’t be more than about $50.
Similar to how renters pay first and last month’s rent upfront, homebuyers have to set aside money for future property tax and homeowners’ insurance payments. These payments are held in what’s called an escrow account, in case property taxes or insurance bills suddenly spike. It’s common to pay a year’s worth of insurance payments at closing, plus an additional two months of insurance and property tax payments as a buffer into your escrow account. Your mortgage company will pay your tax and insurance bills from that account.
Your monthly mortgage payment actually covers the previous month. If you close in mid-October, your first mortgage payment will likely be due on December 1. Lenders will collect prepaid interest on the loan between your closing day and the end of the month you close. It’s a per-day rate (yearly interest charge/365 days=one day of interest payment). This is due at the closing day.
Lenders will want to you to pay through wire transfers. That’s the most secure way to move around money, but it comes at a cost. Depending on the service you’re using (which the lender will determine), you can expect these fees to cost as little as $25 or as much as $100.
The recording fee is the cost of making the sale official with the government. The exact cost varies by county. Some counties charge a flat rate, while others charge by the size of the document.
When you ask for a loan, you’ll get a good faith estimate of how much that loan will actually cost you. In addition to interest rates and lending terms, this report will also include a line item report of all the expenses you’ll be responsible for when the sale closes. It’s a good idea to compare all of these factors to understand the true cost of the loan. Note that these numbers are not final and that they can change. Three days before closing, the lender will update the estimate with more accurate figures.
Some lenders promote “zero closing cost” mortgages. As the name implies, these offers roll closing costs into the mortgage, which drastically reduces the cash you need to close a sale. But keep in mind, you will pay for the closing costs eventually, and zero closing cost loans often come with higher interest rates. That means you can end up paying more over time compared to a conventional mortgage that has closing costs associated with it.
If you’re a veteran, the VA offers mortgages specifically for military members. One benefit to VA loans is they don’t require any down payment. That frees up a lot of cash for other closing costs.
Another benefit is that military families are exempt from some of the most common closing costs when they get a VA loan. For example, veterans can’t be charged for certain types of attorney fees, document preparation fees, or escrow fees.
The government also offers mortgages through the Federal Housing Association. These loans reduce barriers to homeownership, and that makes them popular with first-time home buyers and buyers with low-to-moderate income. It’s often easier to roll closing costs into these mortgages, and interested parties are allowed to pick up more of the closing costs compared to a sale with a conventional mortgage.
If closing costs and down payments seem daunting, you’re not alone. That’s why many states, municipalities, and nonprofits have down payment assistance programs. Unlike loans, many of these programs are grants, which you do not have to repay. It’s worth looking into—securing one could save you thousands of dollars.
I hope you’re feeling more confident about closing costs. It’s important to remember that all the closing costs will be outlined in the good faith estimate, and there are resources to help ease your financial burden. If you have any more questions, or have any advice you’d like to share, write it out in a comment below!
“Baret Grigorian was amazing!! From start to finish Baret was there to help in every way. I never felt like I had to call him to follow up on my loan transaction and he always kept me informed. He was able to get me great financing rates, a lower payment AND money back! Thank you Baret!! I look forward to working with you again in the future!!”
- Kenny D.
“With this being my first home purchase, my loan officer was very good at explaining everything to me and helping me with all my needs. Thank you for having such great people in the right place!”
- Cathleen H.
“Faye helped me purchase my first home last year. She was very professional and worked very quickly to help me procure financing. She made herself available around my schedule and took the time to explain my options for financing to help me get the lowest rate possible. Would highly recommend her to anyone looking for someone that is professional, highly knowledgeable, polite, and responsive.”
- James Z.
“These folks are conscience and easy to work with. The “calm” as the “storm” of home loans rolls through! I would not use anyone else. They make sure ALL your questions are answered, be that what competitors may have offered, or ads you may have heard or seen. What a pleasure to do business with. Thank you team CSMC.”
- Michael G.
“CSMC Mortgage took great care of us and our home buying needs. Tony was more than we could have ever asked for, he went above and beyond for us and we couldn’t have been more grateful for all his hard work. CSMC Mortgage has a great and friendly staff, I would highly recommend them to anyone looking into buying a home.”
- Jannet A.
“David Honda and his team rocked!! They had great technology that took so much of the pain of home buying away. They were attentive to our specific needs and were on top of our loan process! David was always available, even when he was in Hawaii, and super responsive! Thanks David, Melissa and the team for an easy and great home buying experience.”
- Raymond F.
“I had the best experience with CSMC Mortgage. Buying a home is very stressful with all of the paperwork that has to be filled out. Faye was amazing! I have given several people her contact info, who are scared to take the step to homeownership. She took ALL of the stress away for me. I honestly, didn’t have to do much. She accommodated my crazy work schedule and help me get things done in a timely manner. She made me feel so comfortable and at ease. There were no surprises when it was time to sign and pay. I highly recommend her to anyone in need of her services and guidance. I can’t thank her enough.”
- Lisa M.
“This review is about Mark and Darci Richardson from CSMC Mortage in Simi Valley. This team is the BEST! For the past 12 years our home was "underwater" due to the "crash" in 2007, and unable to do anything with the mortgage except pay it. These two kept on top of things and finally the house qualified to REFI. We just completed everything and it closed last week... and they saved us over $900 a month!! That's a huge savings for a couple of senior citizens! We are SO happy now and finally can breathe. Thanks to Mark and Darci and CSMC Mortgage for following through, jumping through all the hoops necessary and helping us out! I can't recommend them more... they are the BEST!!!”
- Shari S.