Common Mortgage Closing Costs: A Guide

Are you in the process of purchasing a home and wondering what additional expenses may come along with the down payments and inspection fees?

Mortgage closing costs are fees and charges that buyers pay on closing day, in addition to the down payment. Whether you’re a first-time homebuyer or a seasoned real estate investor, understanding the common mortgage closing costs can help you budget and plan accordingly.

In this blog, we’ll explore the most common mortgage closing costs. Let’s dig in!

What is a “Closing Cost”?

Let’s start by defining the term “closing cost.”

Closing costs are the fees and expenses incurred when getting a new mortgage or refinancing an existing mortgage. These fees are generally paid to the lender on closing day, and they are in addition to any down payment that may be made at the time of sale.

What are the Most Common Closing Costs?

Now that we’ve defined the term “closing costs,” we’ll take a look at what expenses make up the most common mortgage closing costs.

The actual closing costs you’ll pay may vary (based on factors like the type of mortgage, the location of the property, and your specific loan terms), but this list covers the most common costs that may arise at closing.

Loan origination fee: Loan origination fees are charges you may pay to the lender for processing and underwriting your loan application. The fee is typically a percentage of the total loan amount, but some lenders may charge a flat fee.

The loan origination fee covers the lender’s costs for reviewing and processing your application, including verifying income, checking credit history, and confirming employment status.

Appraisal fee: When you apply for a mortgage, your lender will typically require an appraisal of the property. The purpose of the appraisal is to assess the value of the property and ensure that it’s worth the amount of money that you’re planning to borrow.

The appraisal fee is the cost to cover the expense of having a professional appraiser visit the property and conduct the appraisal.

Title search and title insurance: The title search involves a professional (usually a title company or real estate attorney) examining public records to determine who has legal ownership of the property and whether there are any liens or other claims against it.

Once the title search is complete, you’ll typically purchase title insurance as part of your closing costs. Title insurance protects you from financial loss if any issues with the title arise after the sale.

Homeowners insurance: When you take out a mortgage to buy a home, your lender will require that you have homeowners insurance to protect the property in case of damage or loss. To ensure this insurance is in place, your lender may require you to pay for the first year of coverage upfront as part of your closing costs.

Prepaid interest: This is the interest you pay upfront to your mortgage lender for the period between your loan closing date and the end of that month.

Property taxes: Depending on when you’re purchasing your home, the seller may have already paid the property taxes for the current year. If that’s the case, you’ll need to reimburse the seller for a prorated amount that covers the period after you become the property owner.

Escrow fees: When buying a home, an escrow account is typically established to hold the buyer’s earnest money deposit plus funds for property taxes, insurance, and other expenses. Escrow fees are the costs associated with the setup and management of this escrow account.

Recording fees: Your lender will record the mortgage with the local government. This protects the lender’s interest in the property and ensures that the mortgage is legally recognized. The fee to record the mortgage with the government is the recording fee.

Attorney fees: Some states require an attorney to be present at closing, which will result in additional fees.

Get Started on Your Path to Homeownership

Understanding the various costs associated with a mortgage is essential for any prospective homeowner. From home inspections and closing costs to monthly payments and interest rates, there are many factors to consider when deciding to take the leap into homeownership. By taking the time to research, compare options, and choose the right mortgage lender, you can find the best mortgage for your unique financial situation.

With the right preparation and help from the knowledgeable Mortgage Team at Connexus, you can navigate the complex world of mortgages and achieve your dream of homeownership.