Here's What's Included in a Home's Closing Costs

By Dan Rafter on 1 September 2017 0 comments

Taking out a mortgage isn't free. You can expect to pay 2 percent to 5 percent of your home's purchase price in closing costs, the fees that everyone from lenders to title insurers charge to originate your loan. If you're buying a home for $200,000, for example, you can expect to pay between $4,000 and $10,000 in closing costs. (See also: 8 Ways to Reduce Mortgage Closing Costs)

At least three business days before you close on your mortgage loan, your lender will send you the closing disclosure. This form lists exactly how much you'll pay each month for your mortgage, when your payments begin, and what your interest rate is.

The closing disclosure also lists your closing costs, giving you the chance to review them before you sign any documents at the closing table.

Here are some of the costs you might find listed on your closing disclosure.

Appraisal

Before your lender will loan you mortgage dollars, it wants to make sure that the home you are buying is worth what you are paying for it. To determine this, it will send an appraiser to your property to determine its value. You'll have to pay for the appraiser's work. You can expect this to cost about $400.

Escrow

Most lenders will require you to open an escrow account when you take out a mortgage. Under such an arrangement, you will pay extra money with each mortgage payment, with some of that money funneled into your escrow account. Your lender will then use that money to pay your property taxes and your homeowners insurance bills on your behalf when they come due.

Typically, your lender will require that you make two to three months of your homeowners insurance and property tax payments at closing to start off your escrow account. So, if you must pay $500 every month for taxes and insurance, you'd have to prepay $1,000 to $1,500 at closing.

Origination fee

The origination fee is one of the bigger closing costs you might pay. This fee covers the costs that your lender incurs when originating your loan. You can expect this fee to be about 1 percent of your home's purchase price. For a $200,000 home, that comes out to $2,000.

Lender's policy title insurance

This insurance policy protects your lender in case the title insurance company made a mistake in its title search and you later discover that there are liens against your home. This can happen if a past owner failed to make property tax payments. This title insurance is not optional. Costs vary depending on your state, but you can expect to pay about $1,000 for this insurance.

Owner's title insurance policy

This form of title insurance protects you if someone comes forward with a claim that they have an ownership stake in your home. This is usually an optional fee. You can expect to pay about $600 to $1,000 if you choose to purchase this insurance. (See also: Yes, You Need Home Title Insurance — Here's Why)

Title search

Before you close your loan, the title insurance company handling your closing will search the records of your new home. The goal is to make sure that no other individual or government body has an ownership claim against the property. This search usually costs from $100 to $250.

Underwriting fee

Before it approves you for a mortgage, your lender pulls your credit, verifies your income, and verifies your employment to make sure that you can afford your monthly payment. This fee covers those costs. This fee can vary widely, but expect to pay about $150.

Title settlement fee

A title insurance company will run your loan closing. The title settlement fee is what they charge for doing this. This fee can vary greatly, which is why it pays to shop around for a title insurance company. Your real estate agent might recommend a title insurance company, but you can still shop around for one on your own.

Credit report

When you apply for a loan, your lender will run your credit. Your credit reports list such important numbers as what you owe on your credit cards, whether you've made any late auto loan payments, and whether you've lost a home to foreclosure. Your lender will charge about $50 to $80 to pull your credit.

Flood determination fee

A third-party provider will determine if your home is in a flood zone. You'll have to pay this fee even if your home is located nowhere near water. It's not a costly fee, though, usually running from $10 to $20.

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