Mortgage closing costs are an important, inevitable expense that should be accounted for when you’re saving to buy a home. Most loans require a down payment of 3% to 20% of the purchase price, depending on your loan type, but you will also need additional funds to cover other fees. Mortgage closing costs vary based on the lender you choose and the type of loan, but in general, these are fees your lender is charged by a third party that get passed on to you.
What Do Closing Costs Cover?
Closing costs typically include the following:
- Credit application fee
- Loan origination fees
- Home inspection
- Title insurance
- Title searches
- Title recording with the city or county
- An escrow deposit
- Escrow fees
- Notary fees
In addition, you may elect to lower your mortgage interest rate – and thus, your monthly payment - by paying points, which would add to your total closing costs. In general, your closing costs will run you between 3% and 5% of the home’s purchase price.
How to Save on Closing Costs
You do have the ability to negotiate some of your closings costs. Shortly after you apply for a loan, you’ll receive a Loan Estimate (LE) that details all of your estimated closing costs. Some fees are fixed, but some fees may be an opportunity to negotiate with the lender. In addition, your LE specifically lists things you can price shop for – like title services and insurance - so don’t skip this step because you may find a better deal. It also doesn’t hurt to ask if your prepaid fees – property taxes, hazard insurance premiums, private mortgage insurance premiums - and escrow payments can be lowered.
Three days before you’re set to close on your home loan, you’ll receive a Closing Disclosure that provides a final summary of all closings costs. If there are any discrepancies between the LE and the Closing Disclosure, don’t hesitate to address them with your lender to ensure there’s an acceptable reason for the change. Please note, if you find you need to make a change to the Closing Disclosure, it may delay your closing date an additional three days from the time you receive the revised disclosure. These waiting periods are intended to give you ample time to review all the documentation and not make a rush decision on what’s likely the largest purchase of your lifetime.