Understanding Closing Costs

Understanding mortgage closing costs can be a confusing process as there are many numbers thrown around when it comes time to purchase a home. This can be particularly intimidating when interacting with mortgage professionals that deal with these numbers and terms on a daily basis. When a buyer begins a search, closing costs and fees are among the very first things that should come to mind as these can impact payments over the next several years.

What are Closing Costs?

Most think only of the down payment and fail to realize it can be much more than that. “Closing costs” is a general term used to include any costs or various fees associated with the loan process. Although borrowing for a mortgage is a completely normal and everyday occurrence, every lending institution will still assess the financial ability of someone to repay a large mortgage.

Down Payments

The standard amount for a down payment used to be 20%. In fact, this still remains the standard in many cases. However, conventional loans and FHA loans now allow minimums of 3% to 5% of the total loan amount. It’s not unrealistic to add several thousand more to this amount before turning the key for the first time.

For instance, beyond the down payment, one can expect to pay any or all of the following: transfer taxes, title, escrow, attorney fees, inspection fees, and more. This is not to mention those continued costs such as PMI and taxes.

The lender will go into detail about their costs. These will include loan origination fees, application fees, discount points, appraisal fees, and credit reports.

Making Sense of Cents

Beyond the initial down payment, there are many seemingly endless costs and fees involved in owning a home. Once any initial sticker-shock wears off, buyers can decide what makes the most sense financially, whether to purchase or walk away.

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