Mortgage 101: Breaking Down Closing Costs

Posted by Laine Smith on 12/9/14 10:51 AM

Topics: Home Buying

When you get a mortgage, you will likely be paying closing costs at the finalization of your purchase or refinance. These fees are charged by your lender and third parties that have performed services related to your home purchase. Typical closing costs range from 2 to 5 percent of the purchase price of a home.


Listed below are some of the typical costs buyers will come across from their loan process (not all are applicable):

  • Credit report fee
  • Loan origination fee, which is charged by the lender for preparing and submitting the mortgage paperwork
  • Attorney’s fees for preparing and reviewing the documents needed to close the loan
  • Inspection charges
  • Appraisal fee
  • Recording fee, paid to a city or county for recording the real estate records
  • Survey fee
  • Title search fees
  • Title insurance, which protects the buyer against fraudulent ownership claims
  • Escrow deposit, which may be required to cover property taxes, homeowner’s insurance and/or private mortgage insurance
  • Notary fee
  • Discount points, a fee the buyer agrees to pay to the lender in exchange for a lower interest rate

Good Faith Estimate

Closing costs vary based on the borrower’s loan program, the purchase agreement, etc. When you apply for your loan, you will receive a document called the Good Faith Estimate (GFE). The GFE discloses an estimate of the fees that you will incur with your home loan.

Seller and Buyer Closing Costs

At closing, both buyers and sellers have costs associated with the sale and purchase of the property in question. The sellers pay the real estate commission and buyers typically take care of the line-item expenses listed above.

Buyers and sellers can negotiate who covers closing costs during the real estate transaction. For example, it may be a hurdle for buyers to come up with the funds to close on the purchase. Buyers can ask that sellers cover their closing costs rather than reduce the purchase price to cover the buyer’s expenses.

Looking for more information on the home buying and financing process? Our free Mortgage 101 Handbook is an essential guide for all things homebuying.

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