304 North Cardinal St.
Dorchester Center, MA 02124
304 North Cardinal St.
Dorchester Center, MA 02124
Closing costs are the fees charged to finalize a mortgage loan and transfer homeownership. These costs are paid at closing and typically range from 2% to 5% of the total loan amount. Closing costs include charges by the lender, third-party fees, prepaid expenses, and government fees. Buyers aim to minimize closing costs when taking out a mortgage.
This guide will help you understand closing costs, compare options to lower fees, negotiate for savings, and choose lenders with affordable closing costs.
Closing costs cover the fees to process, underwrite, and close the mortgage loan. While specific charges vary, common closing costs include:
Closing costs also include third-party fees paid to the real estate attorney, escrow agent, or other professionals facilitating the closing. Shopping lenders and negotiating can help reduce these closing costs.
Several key factors determine your total closing costs:
Asking your lender for a complete breakdown of estimated closing costs helps reveal areas to target savings.
Mortgage closing costs often take into account various fees and charges, can significantly impact your overall mortgage costs.
Closing costs typically range from 2% to 5% of the loan amount. They encompass fees for various services and processes involved in finalizing your mortgage, such as home inspections, title searches, and origination fees. Let’s break them down:
The exact closing costs can vary depending on your lender and the type of home you’re purchasing. However, you can make a rough estimate based on the average percentages.
The lender’s origination fee is usually the largest closing cost, averaging around 1% of the loan amount.
Here’s a table to give you an idea:
|Cost||Percentage of Loan Amount|
|Origination Fee||0.5% – 1%|
By adding up these percentages, you can get a rough estimate of your closing costs as a percentage of your loan amount. For example, if your mortgage loan is $300,000, your estimated closing costs could range from $6,000 to $15,000. On average, closing costs in the United States amount to around $5,000.
Remember! These costs are just estimates and actual costs may vary. Always consult with your lender or a financial advisor for exact numbers.
When shopping mortgage lenders, closing costs should be one of your main points of comparison. Here are some tips:
Early in the application process, lenders must provide a Good Faith Estimate outlining estimated closing costs. Compare these side-by-side.
Once you choose a lender, carefully review the Loan Estimate form listing itemized costs. Compare to other lender’s Loan Estimates.
Many fees are negotiable or waivable. Ask lenders what they can do to reduce or eliminate specific closing costs.
Some lenders offer “no-closing cost” mortgages by rolling fees into the loan amount. Compare long-term costs of this option.
Sellers may agree to pay a portion of closing costs through the sales contract. This effectively reduces your costs at closing.
Here are some top ways to reduce the closing costs on your mortgage:
Obtaining quotes from multiple lenders makes it easier to find affordable closing costs. Leverage lender competition.
Review the fee estimates line-by-line and ask about waiving or reducing individual charges.
Lenders and real estate agents often negotiate their commissions and fees. Ask for discounts.
The lender covers closing costs by adding them to the mortgage balance. You repay the costs over time.
Sellers can agree to a closing cost credit for buyers, typically 3% of the purchase price.
First-time homebuyers may qualify for down payment or closing cost assistance grants.
Certain mortgage programs and loan types tend to offer lower overall closing costs:
Conventional loans usually have lower upfront mortgage insurance fees compared to FHA or VA loans, reducing overall closing costs.
The closing costs for a fixed-rate mortgage are typically lower compared to an adjustable-rate mortgage.
Non-conforming jumbo loans above the conventional limit can have higher closing costs. Conforming loans have lower costs.
Certain lenders are competitive when it comes to low rates and affordable closing costs:
When applying for a mortgage, keep these tips in mind to avoid surprises at closing:
In most cases, the higher your credit score, the lower your closing costs:
Paying down debts, fixing errors on your credit reports, and managing credit wisely helps raise your score to reduce closing costs when you apply for a mortgage.
A Good Faith Estimate is a standard form that was traditionally used in the United States for estimating the closing costs for a mortgage loan. This form was replaced by the ‘Loan Estimate’ in October 2015 as part of the Consumer Financial Protection Bureau’s ‘Know Before You Owe’ mortgage initiative.
The purpose of the GFE, or the current Loan Estimate, is to provide borrowers with a comprehensive and accurate estimate of all the costs involved in obtaining a mortgage. This includes interest rates, loan terms, and closing costs.
The closing costs are an integral part of the GFE. They are the costs and fees associated with finalizing your mortgage. These may include:
Closing costs typically range from 2% to 5% of the loan amount. The GFE or Loan Estimate provides a detailed breakdown of these costs, helping you understand and prepare for them ahead of time.
Remember, choosing the best mortgage for closing costs means understanding and comparing these costs in your Loan Estimate.
Some lenders offer “no closing cost” mortgages by financing closing costs into the loan amount. Consider the pros and cons:
For most homebuyers, paying closing costs upfront or negotiating discounts is a better long-term option than rolling them into the mortgage. But it can provide flexibility if needed.
Thoroughly weighing mortgage closing costs during lender comparisons helps you identify the most affordable options. Leveraging lender competition, shopping for the best rates and fees, and negotiating can produce significant closing cost savings. With some effort, you can reduce these fees and make your home purchase more budget-friendly.
Yes, shopping around is one of the most effective ways to get lower closing costs on your mortgage. It’s recommended you get mortgage quotes from 3-5 different lenders so you can compare their rates and estimated closing costs side-by-side. Locking in the lender with the most affordable overall fees and charges for your situation will help you save money at closing time.
Some government and nonprofit programs provide down payment and closing cost assistance, including:
In most cases, closing costs are not tax deductible. However, you may be able to deduct mortgage interest, property taxes, and some points paid to buy down your interest rate. Make sure to save documentation of these mortgage-related payments. Consult a tax professional to understand which specific costs may qualify as write-offs on your tax return.
It is possible to get a no closing cost mortgage, where the lender covers all or most of the usual closing costs by rolling them into the total loan amount. You then repay the closing costs over time through your monthly mortgage payments at the same interest rate. Lenders sometimes run promotions where they offer these no closing cost loans.
Many of the closing costs from third-party providers are negotiable to some extent. Your loan officer may be able to negotiate with the title company, escrow officer, and other third parties to lower some of their standard fees. You can also negotiate lender fees, and ask for discounts on origination points, application fees, or other charges from the lender directly. It never hurts to politely ask!