If you’re in the process of buying a home, you’ve probably heard about closing costs – and wondered what they actually are. Don’t worry, you’re not alone.
Most first-time buyers are unfamiliar with everything the term “closing costs” entails. So here’s a little 411 on the usual meaning.
Noun | Fees charged to the borrower for those involved in the sale of a home
Shout out to the appraiser who estimates the home’s value and the banker who ensures a successful exchange, these fees go to you.
What are these “fees”?
Closing costs are fees charged to the borrower that are associated with what it takes for professionals to do the loan. Some include appraisal fees, credit report fees, IRS transcript fees, title and attorney’s fees and escrow fees. These one-time costs correlated with doing a mortgage are not charged again for the life of the loan.
Loan type, loan amount and other variables can determine the price of the costs. For example, some closing costs charged on conventional loans may not be charged on VA loans.
Are you asking yourself if and why you have to pay all of these? Good news; you may not have to. Depending on the loan program, the seller is sometimes allowed to pay a portion of the closing costs to help have an easy and successful home buying process. Now, let the relief settle in.
Oh great, more terms…
If you’re still a bit confused, we’ve got a glossary of common fees* associated with closing costs we want to share with you. We’re here to rescue you from the mortgage jargon, so we’ll keep it short and sweet.
- Application Fee: You know, that fee you pay when you apply for a loan.
- Appraisal Fee: A professional comes to your home and determines the value of the property.
- Credit Report Fee: You pay to get a report of your credit history. Yes, all of those credit cards you opened are listed on the report.
- Escrow Fee aka Closing fee: This fee, my friend, is paid to whoever is conducting the closing on the home whether it be the escrow company, title company or attorney. The fee covers important house documents and deposits made during escrow.
- Flood Certification Fee: Don’t know if your new home is in a flood zone? Your lender may require a flood zone determination service to determine if it is and, if so, you’ll need to pay flood insurance, just in case.
- Title Insurance: You pay a title insurance company this fee to protect both yourself and the lender against any defects on the title.
I think I understand now.
All loans are different and closing costs vary per loan. The key to closing costs is to budget for them. Research, calculate and set aside money to pay these inevitable fees. You’ll be glad you did.
*This list is not exhaustive and additional closing costs may apply. Some of these charges may not apply to all loans.