Shopping for a mortgage can be a confusing process. There are so many numbers and legal terms. And, let’s not forget the reason you’re shopping for a mortgage in the first place which usually goes hand in hand with shopping for a home. Also, a complex process.
But you’re forgetting one more thing – closing costs. Beyond the cost of your new home (or refinance) are the costs associated with getting the loan for it.
If you didn’t even see this coming, you must keep reading. Even if you knew closing costs were ‘a thing’, it can’t hurt to browse over the information presented here to be familiar with closing costs when buying a home.
So, without further ado, let’s look at a simple breakdown.
What Are Closing Costs?
As we mentioned, closing costs are the fees associated with getting a loan to purchase a home or refinance a mortgage. These fees are paid at the time of closing when the property is transferred to the buyer or from lender to lender.
Closing is outlined in this BiggerEquity article and you can ask your realtor what to expect before the closing day arrives.
What Do Closing Costs Include?
These costs vary by state, and even municipality and depend on the home and loan type. Typical costs included are loan origination fees, credit report charges, title searches, and appraisal fees.
There may be other fees within the following categories :
- Loan Related Costs
- Property Related Costs
- Other Insurance Related Costs
Ask your loan officer for a breakdown of what you’ll be paying for.
Who Pays Closing Costs?
The first question buyers usually ask is how do closing costs work? The answer is that there is always room to negotiate. However speaking, the buyer pays closing costs.
Some lender fees may be lowered. Ask your loan officer how to get some of your fees reduced.
How Much Are Closing Costs?
The standard average for closing costs is anywhere from 3% to 6% of the purchase or refinance price. Most people can expect to pay around $3,700.
Before you sign on the dotted line, check the trade-offs on discount points. You could reduce your closing costs by avoiding them, although you may end up with a higher interest rate as a result.
Final Thoughts on Closing Your Loan
Your closing costs will be outlined in your Good Faith Estimate which is included in the documentation that you will sign at your closing.
Now that you know what to expect from closing costs, you may have a better idea for how to budget for your home purchase or refinance. It’s important to remember that these costs may also vary by lender and loan type so you’ll want to leave some room in your budget for these varying factors.
We hope you found this information helpful!
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