Closing Costs

Closing costs is an expense of getting a mortgage. Closing costs are a combination of lender fees and third party fees, most of which are paid by the home buyer at closing. You may choose a loan program that allows the seller to pay a portion of these costs, particularly VA loans and FHA mortgages. Some loans also allow you to roll these costs into your new mortgage.

After you apply for a mortgage, your lender is required to provide a Loan Estimate (LE), a statement that estimates and breaks down the closing costs for you. As you review this estimate, remember that many listed items can legally increase by up to 10%. You can compare the estimated expenses to your Closing Disclosure (CD) statement received prior to closing. You have the right to walk away from the loan transaction if you are not happy with the closing costs, or you can attempt to negotiate them lower.

On average closing costs are between 2% and 5% of the purchase price of the home.

Third Party Closing Costs

Many of the closing costs you will pay are third-party fees which are not controlled by the lender. Common examples of third-party fees include:

• Home appraisal, which is important to determine the home's market value. Lenders require appraisals to justify the loan amount.
• Closing fee, which is charged by your title company.
• Credit report fee, which is charged by credit bureaus for lenders to review your credit.
• Survey fee, which may be required to verify the property boundaries.
• Title insurance, or the Lender's Policy, protects the lender by ensuring the loan is a valid lien.