What are Typical Closing Costs for Buying a Home?

You feel you're ready to buy that home and have the money saved for a down payment. What? Now you need money for typical closing costs!! You feel cheated, why didn't someone tell you there would be costs to close on your new home.

This is how many first time home buyers feel when they first hear about closing costs. So let me tell you up front, all home purchases have closing costs to complete the transaction. These costs can run typically from 2% to 4% of the loan.

Every lender should give you what is called a "Good Faith Estimate" or "GFE" for your loan. This GFE will itemize those costs. Be sure to study this estimate and ask questions if you don't understand the entries listed. If your lender doesn't happen to give you a GFE, ask for it. This is your way of knowing what costs you'll have to pay for upfront.

What are Some of the Typical Closing Costs?

• Lender fees
  
• Pre-paid items
  
• Title fees
  
• Recording fees

Now let's explain each of these:

Lender fees

These are various fees that the lender charges to process the loan application. They would include things like a credit report fee, which is the fee to pull a credit report. Loan origination fee which is used to cover the cost of obtaining financing and administration for your loan. The commission paid for the loan comes from this also. There may also be what is called a processing fee which is charged to your loan and they may charge an underwriting fee. Pay attention to these fees since they can be negotiated.

Pre-paid items

These items are things like property insurance, property taxes, and your mortgage interest. You see the seller may have paid his property taxes for the whole year, but halfway through the year he sells the home. Well he gets reimbursed for the six months he had already paid. That reimbursement comes from you as typical closing costs. Also depending on when you close, there is interest on the mortgage that would accumulate before your first mortgage payment. That accumulation is one of the pre-paids included in your closing costs. Usually these costs cannot be negotiated. Sometimes the seller will assume some of these costs if the lender will allow it. Be sure to find out what your lender will allow.

Title fees

Title fees or title research, which is sometimes called title insurance, insures you have clear title to your home. You want this title insurance. Every home I have purchased had problems where I had to use this insurance to cover it. It's amazing that there are that many mistakes, but there are. For example, I had purchased a home that had been empty for many years and the city had kept the law mowed and wanted the cost of mowing paid at closing. The city did their job to have it recorded but the title company had missed the fee. That's where your title insurance comes in!!! They had to pay that missed fee.

Recording fees

These are fees that the local government agency collects when the deed is recorded. Sometimes they are called doc stamps or recording taxes. The fee is fixed, but whether the buyer or seller pays this fee can be negotiated.

There are many other fees that can appear on your GFE, but the ones listed above are just some of the typical closing costs. So be sure to evaluate that GFE closely so you understand all the fees. Without that understanding how can you negotiate to lower those fees. I also recommend you see a final GFE prior to closing. Sometimes those fees change at the last minute and you don't want to be surprised.

Jeff Ragan wants to help you learn more about mortgage closing costs and other helpful information on their website, First-Time-Home-Buyer-Solutions.com.