Mortgage 101: What Are Closing Costs and How Can You Minimize Them?

Posted by Laine Smith on 1/4/17 10:00 AM

Topics: Home Buying

When you get a mortgage, you will most likely be paying closing costs at the finalization of your purchase or refinance. These costs, which typically range from 2 to 5 percent of your home’s purchase price, are charged by your mortgage lender and third parties that have performed services related to your home purchase (a lot of behind-the-scenes players are involved in the home buying and financing process). See here what you can expect to pay within your closing costs and ways you can try to minimize what you need to bring to closing.

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What Costs Can I Expect?

Here is a list of some of the typical costs homebuyers incur throughout the home financing process, though not all are applicable:

  • Credit report fee
  • Loan origination fee
  • Recording fee
  • Title search and insurance
  • Appraisal fee
  • Survey fee
  • Attorney fee
  • Notary fee
  • Escrow deposit
  • Home inspection
  • Discount points

To see more information about these charges, click here for our closing cost breakdown.

When Will I Know My Final Amount to Bring to Closing?

Under TILA RESPA Integrated Disclosures (TRID), your lender is required to provide you with a Loan Estimate, which includes an Estimated Cash-to-Close sheet, after application.

Your lender is also required to deliver a Closing Disclosure form at least three business days (Monday-Saturday, excluding federal holidays) prior to closing. The Closing Disclosure will contain all final costs, though limited changes are allowed for certain circumstances.

How Can I Minimize My Closing Costs?

If you’re buying a $200,000 home and closing costs range from 2 to 5 percent, that means you could end up paying anywhere between $4,000 and $10,000 at closing. Here are a few ways to minimize how much you need to bring to closing.

  • Negotiate with the seller. Having the seller of the home pay closing costs can be a win-win situation for both sides of the transaction. Talk to your real estate agent on the best way to include closing costs into your purchase offer.
  • Consider a no closing cost mortgage. Talk to your lender about a no-closing cost mortgage. Some lenders have the capability to waive some or all costs in the form of charging a higher mortgage rate or adding the costs to the loan balance.
  • Get the details. You wouldn’t commit to a lender before knowing what your interest rate was, so make sure to ask about their closing costs, as well. You are looking for the total package in home financing – a low interest rate and minimal closing costs.

Interested in seeing how closing costs at Compass Mortgage compare? Contact one of our mortgage bankers. To learn more about the home buying and financing process in general, download our free Mortgage 101 Handbook.

Download: Mortgage 101 Handbook

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