Mortgage Closing Costs…How Much Should you Pay?

August 15, 2012 No Comments »
Mortgage Closing Costs…How Much Should you Pay?

Whether you’re buying a home or refinancing, closing costs give even the savviest of buyers, sticker shock. The little fees add up fast to thousands of dollars. Understanding what to expect, however, gives you negotiating power. Drive down your total costs, and even reduce your fees to nothing, with a few tips.

What are Closing Costs?

Closing costs, which are also called settlement costs, are fees incurred from the purchase of your home. Lenders typically charge between two and five percent of the home’s total purchase price. For example, a $200,000 home might cost you $4,000 to $10,000 in closing cost.

Does the price tag seem high? It is. That’s why shopping for a loan with low closing costs, helps drive down your upfront costs. When applying for a loan, you’ll receive a good faith estimate, which includes an itemized list of fees.

What Should I Pay?

A good faith estimate includes a variety of fees, from your home inspection, to document recording to application fees. Remember, your total cost shouldn’t exceed two to five percent of the purchase price. Here’s a basic example of what you might pay, purchasing a $200,000 home:

Loan application and credit report: $75 – $400
Loan origination fee (1% of the loan value): $2,000
Title search and insurance fees: $450 – $600
Lender’s attorney: $150 to $400
Appraisal: $150 to $400
Inspection: $175 – $300
Survey: $125 to $400
Recording fees: $100 to $200

If you decide to “buy down the rate,” which means you pay a fee to secure a lower interest rate; you’ll pay another fee, which is usually $2,000 to $6,000, depending on your lender. Your lender might also require you to set up an escrow account, for items such as homeowner’s insurance and private mortgage insurance (PMI). Discuss requirements with your lender.

Driving Down Costs

Review your good faith estimate closely for opportunities to reduce closing costs. For example, forgo overnight delivery of documents to decrease costs. Review each fee carefully and dispute items that seem high or questionable. Even better, request a good faith estimate from several lenders, and compare rates. Then, ask your preferred lender to match the competition’s lowest rates.

Also, look for loans that offer no fees. With this type of loan, your interest rate is higher, but you’ll benefit from lower upfront costs. Another option is to negotiate with the seller to pay your closing costs, which offers huge savings!

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