What are closing costs?

Closing costs are fees associated with your home purchase that are paid at the closing of a real estate transaction. Closing costs are incurred by either the buyer or seller.

What fees can you expect at closing?

Closing costs vary widely based on where you live, the property you buy, your lender, and the type of loan you choose. Here is a list of fees that may be included in closing.  The list includes many of the different fees and expenses you may see, but it’s unlikely that your loan will include all of the fees listed here (and it could include others which are not listed).

• Application fee: This fee covers the cost to process your application. Before submitting an application, you should ask what this fee covers. Not all lenders charge an application fee, and it can often be negotiated.
• Appraisal: This is paid to the appraisal company to confirm the fair market value of the home.
• Attorney fee: This pays for an attorney to review the closing documents on behalf of the buyer or the lender. This is not required in all states.
• Closing fee or escrow fee: This is paid to the title company, escrow company or attorney for conducting the closing. The title company or escrow oversees the closing as an independent party in your home purchase. Some states require a real estate attorney be present at every closing.
• Courier fee: This fee generally covers the cost of transporting documents to complete the loan transaction as quickly as possible.
• Credit report: A tri-merge credit report is pulled to get your credit history and score. 
• Escrow deposit for property taxes and insurance: Often you are asked to put down two months' worth of property tax and mortgage insurance payments at closing.
• FHA Up-Front Mortgage Insurance Premium (UFMIP): If you have an FHA loan, you’ll be required to pay the UFMIP, which is a percentage of the base loan amount. You may be able to roll this into the cost of the loan if you prefer.
• Flood determination or life of loan coverage: This is paid to a third party to determine if the property is located in a flood zone. If the property is found to be located within a flood zone, you will need to buy flood insurance. The insurance, of course, is paid separately.
• Home inspection: You will likely get your own home inspection to verify the condition of a property and to check for home repairs that may be needed before closing.
• Homeowners association (HOA) transfer fees: The seller generally will pay for this transfer, which will include proof that the dues are paid current, what the dues are, a copy of the association financial statements, minutes and notices.
• Lender’s policy title insurance: This is insurance to assure the lender that you own the home and the lender’s mortgage is a valid lien, and it protects the lender if there is a problem with the title. 
• Loan discount points: Generally speaking, “points” are prepaid interest that is paid to buy down the interest rate. One point is one percent of your loan amount. 
• Owner’s policy title insurance: This is an insurance policy that protects you in the event someone challenges your ownership of the home. It is usually optional.
• Origination fee: This covers the lender’s costs to originate the loan.
• Pest inspection: This fee covers the cost to inspect for termites or dry rot, which is required in some states and required for government loans. Repairs can get expensive if evidence of termites, dry rot, or other wood damage is found.
• Prepaid interest: Most lenders will ask you to prepay any interest that will accrue between closing and the date of your first mortgage payment.
• Private mortgage insurance (PMI): If you’re making a down payment that’s less than 20% of the home’s purchase price, chances are you’ll be required to pay PMI. If so, you may need to pay the first month’s PMI payment at closing.
• Property tax: You may need to pay any taxes due within 60 days of purchase by the loan servicer at closing. Taxes are generally prorated between the seller and buyer based on the closing date. 
• Recording fees: A fee charged by your local recording office, usually city or county, for the recording of the deed and security instrument.
• Survey fee: This fee goes to a survey company to verify all property lines and things like shared fences on the property. This is not required in all states.
• Title company title search or exam fee: This fee is paid to the title company for doing a thorough search of the property’s records. The title company researches the deed to your new home, ensuring that no one else has a claim to the property.
• Transfer taxes: This is the tax paid when the title passes from seller to buyer.
• Underwriting fee: This also goes to your lender, covering the cost of underwriting. Some lenders charge only an underwriting fee or only an origination fee — ask your lender about their fee structure, or look at the Loan Estimate you are provided after application.
• VA funding fee: If you have a VA loan, you may be required to pay a VA funding fee at closing (or you can roll this fee into the cost of the loan if you prefer). This is a percentage of the loan amount that the VA assesses to fund the VA home loan program; however, some borrowers may be exempt from this fee. The percentage depends on your type of service and the amount of your down payment.

How much are closing costs?

Closing costs can vary based on many factors, such as loan type, home type, and location. Typically, home buyers will pay 2-5% of the purchase price of their home in closing fees. So, if your home cost $150,000, you might pay between $3,000 and $7,500 in closing costs.

Within three business days of applying for a loan, you’ll receive a Loan Estimate for your loan, which will include what the closing costs on your home will be. But these are just an estimate, and many of the fees listed can change. If they do change, you will usually receive a revised Loan Estimate.

At least three business days before your closing, you should receive a Closing Disclosure, which outlines the final closing fees. Be sure to compare this to your Loan Estimate.