Closing Costs: What They Are and How They Affect Your Mortgage
Closing costs are fees and expenses that borrowers pay when they close on a mortgage loan. These costs can vary depending on the type of loan, the lender, and the location of the property, but they typically range from 2% to 5% of the total loan amount.
What are Closing Costs?
- Closing costs are the fees and expenses associated with finalizing a mortgage loan. These costs can include:
- Loan origination fees: These are fees charged by the lender for processing and underwriting the loan.
- Appraisal fee: This fee is charged by a professional appraiser to determine the value of the property.
- Credit report fee: This fee is charged by the lender to obtain a copy of the borrower’s credit report.
- Title search and insurance fees: These fees cover the cost of researching the property’s title and obtaining title insurance to protect against any legal claims against the property.
- Home inspection fee: This fee is charged by a professional inspector to assess the condition of the property.
- Survey fee: This fee is charged by a professional surveyor to determine the property’s boundaries.
- Recording fee: This fee is charged by the local government to record the mortgage in public records.
- Transfer taxes: These taxes are imposed by some state and local governments on the transfer of real property.
- Prepaid interest: This is the interest that accrues on the mortgage loan between the closing date and the first payment date.
Why do Closing Costs Matter?
Closing costs can significantly impact the cost of a mortgage loan. They are typically paid out of pocket by the borrower at the closing, although some lenders may offer to roll them into the loan amount. Either way, borrowers need to be aware of these costs and budget accordingly.
In addition to the direct cost of closing, there may be indirect costs as well. For example, borrowers who pay a higher interest rate in exchange for a lower closing cost may end up paying more in interest over the life of the loan.
How can Borrowers Minimize Closing Costs?
There are several ways that borrowers can minimize their closing costs:
- Shop around: Borrowers should compare loan offers from multiple lenders to find the best deal.
- Negotiate: Some fees, such as the loan origination fee, may be negotiable.
- Look for discounts: Some lenders may offer discounts on closing costs for certain types of borrowers, such as veterans or first-time homebuyers.
- Consider a no-closing-cost loan: Some lenders offer loans with no closing costs, but these loans may come with a higher interest rate.
Closing costs are an important consideration for anyone who is taking out a mortgage loan. These fees and expenses can significantly impact the cost of the loan, and borrowers need to be aware of them and budget accordingly. By shopping around, negotiating, and looking for discounts, borrowers can minimize their closing costs and make their home purchase more affordable. Call Abo Capital today to discuss your real estate venture at (310) 984-8028, we’ve helped thousands navigate the lending process for over 35 years.