Preparing for Closing Costs

By Ashley Smith

When you buy a home, the closing costs are a collection of fees required to set up and close on your new mortgage. They are typically set at 2-5% of the mortgage amount for both home purchase and refinance loans. The closing costs include everything you owe to the lender, home appraiser, title company, and any other third parties involved in the mortgage transaction, all balled into one sum. To make things easier, this large sum is paid to a third party “escrow company” which handles the distribution of these fees to each party. 

One of the most common misconceptions is that the closing costs are included in the down payment. However, that is not true. You will have to pay the closing costs in addition to the down payment, so it is important to budget accordingly. The good news is that most of these costs are negotiable, so you might be able to shop around or talk to your lender about reducing certain closing costs. It is wise to get a few quotes from different lenders and make sure they outline what all of the closing costs will be. Here are some of the more expensive fees that you’ll want to look at closely when you begin talking with lenders:

Broker Fee: a negotiable fee the broker charges for its services, usually 0-1% of the loan amount

Origination Fee: a negotiable fee the lender pays for its services, usually 0-1% of the loan amount

Underwriting Fee: A fee charged to pay for the lender’s employees who gather documentation for your file, coordinate with third parties like appraisers, and inspect the file to approve your loan, usually $300-900

Title Search and Title Insurance: Fees paid to check the home’s historical record to ensure that the property can be legally transferred to you without any title issues, typically $350-2500

Escrow Fees: Fees paid to a third-party escrow company that distributes funds and facilitates sale of the property, typically $350-1000

Appraisal Fees: Fee paid to an appraisal company that estimates the value of the home to determine a fair sale price, typically $500-1000

Prepaid Taxes and Insurance: Typically, you will pay six months to a year of property taxes and homeowners insurance in advance when you close which will usually be around $1000-4500

If you have any additional questions about the closing process or the closing costs, your real estate agent should be able to advise you further. At Williamson Group, our goal is to make sure you are as prepared and knowledgeable as possible upon closing. Don’t hesitate to reach out to us with any additional questions.