January 13, 2022
How Much are Mortgage Closing Costs?
Closing a mortgage is one of the biggest decisions you’ll make, and it’s a super exciting time! You’ve just made a huge step towards homeownership, and it’s definitely something to celebrate. However, one of the things often overlooked in the process itself is how much closing a mortgage costs. There tends to be a lot of discussions around what kind of offers to make when buying and how to stand out...but not a lot on how much to actually budget. Some costs associated with closing a mortgage aren’t really discussed, but it’s important to factor them in when buying a home. These costs can be up to 15% of the price of the home, so if unplanned, they can substantially dent the budget you’ve set.
What Contributes To Mortgage Closing Costs?
Identify lender fees
These can include not just the lender fees themselves but other costs as well. For example, you may also have to pay for loan application fees, closing fees if applicable, credit report fees, and other costs associated with the mortgage application itself. You should work with your lender ahead of time to understand what the fees are when they will be due, and why you are being charged to ensure you have everything mapped out.
Map out deposits and underwriting fees
Some lenders may also ask you to put down an escrow deposit, which could include property tax and mortgage insurance payments for a certain number of months. The requirements may vary, but it’s important to account for that in the process so you can estimate your budget correctly. You’re likely to have to pay for certain kinds of inspections during the buying process to ensure the house is safe and habitable. Though this isn’t always a requirement, you should check with your lender around underwriting fees and any state requirements on what is needed.
FHA mortgage insurance premium
If you’re taking out an FHA loan, it does require an upfront mortgage insurance premium. However, it’s calculated as a percentage of your total loan amount and can be paid separately or combined with your mortgage payments. It’s easier for some to pay it as a lump sum, but others prefer to include it with their payments. If you choose the latter, make sure that you understand how much you’re paying additionally per month and any other charges that might be associated with it.
What is the role of the seller in closing a mortgage?
While sellers pay some of the closing costs, such as property and transfer taxes and real estate commissions, it’s very important to identify potential costs ahead of time to understand what you are responsible for paying. That’s why it’s crucial to shop for mortgages and compare options before selecting one and look at rate quotes carefully before making your choice.
Get informed on Mortgage Closing Costs
The first step in mapping out costs is to look at the area you’re buying in, including state and city regulations, to understand some of the requirements when closing a mortgage. Rules for inspections and fees will vary based on the location. That will help with planning out how to close the mortgage and spread out costs as needed. Additionally, you can work with your lender
to understand the road ahead as you close the mortgage and how much you’ll be spending to better understand how to adjust your budget. The more you’re able to plan out short-term payments versus long-term costs, the better position you’ll be in when you close your mortgage.