What are Mortgage Closing Costs?

Sep 20, 2021 • Our Blog
What are Mortgage Closing Costs?

Closing costs are a list of expenses that you must pay when buying a home. The cost varies depending on the type of mortgage you get but can range from 2% to 5%. This blog post will overview what closing costs are and how they affect your bottom line.

1. What are the different types of closing costs?

You have two types of closing costs. One is the origination fee, and this can vary depending on your lender, but it's usually around half a percent to one percent of the loan amount. The other type is settlement fees which cover third-party services that provide ancillary assistance closing your transaction. These include are not limited to:

  • Appraisal fees
  • Home inspection fees
  • Mortgage insurance fees
  • Escrow account fees
  • Property taxes
  • Homeowner's insurance
  • HOA dues



2. Why do we have to pay these fees?

These fees are required to close your transaction. You can compare them with buying a car where you have to pay for the costs of paperwork, inspections, and registration, etc.
They vary so much because lenders don't use a standard or fee schedule when quoting closing costs on loans. You can shop for specific fees, so feel comfortable asking your lender what you can do to decrease these costs.


3. How much is the average closing cost for a home purchase

Average closing costs range from about 3% - 5% of the loan amount, depending on the state you live in. This is going to rely on the property taxes in your county and also the loan amount. As a general rule, the higher your purchase price and the loan amount will be, the more you'll need to bring to closing.


4. Can I negotiate down my closing costs with my lender

While you can't deal with the actual amounts that your lender will charge you, specific fees they can shop for, and others that are basically set in stone. There's usually room to decrease appraisal costs or underwriting costs when it comes time to close on a loan, so feel free to ask if these would be something worth shopping around for.


5. How can I save on my closing costs if I buy a house myself, rather than through a real estate agent?

Buying a home yourself without an agent is not going to save you very much money. The seller of the house pays the realtor commission (usually baked into the listing price), which means that you will be paying for an agent whether you use one or not.

An agent can also help you navigate the legalities of real estate contracts which could save you thousands if something was to go wrong during the process.
Closing costs are one of the things you should consider when buying or selling a home. They can be challenging to understand, but we've done our best in this blog post to break down what they are and how you can make them as low as possible.

Have questions? Whether you are buying or refinancing, give us a call today! We would love to chat with you about your situation to help guide you through these tough decisions.