Closing Costs: What the Heck Are They?

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There are a lot of moving parts when it comes to buying a home and it can be confusing (especially for first-time home buyers). One frequently misunderstood area is closing costs. Many home buyers think that saving for their down payment is enough to buy the house of their dreams, but what about the closing costs that are required to obtain a mortgage? 

How do you find out what your closing costs will be?

By law, a home buyer will receive a loan estimate from their lender 3 days after submitting their loan application and they should receive a closing disclosure 3 days before the scheduled closing on their home. The closing disclosure includes final details about the loan and the closing costs. Make sure to double-check they (closing disclosure and loan estimate) are what you agreed to.

But what are closing costs anyway?

According to Trulia: “Closing costs are lender and third-party fees paid at the closing of a real estate transaction, and they can be financed as part of the deal or be paid upfront. They range from 2% to 5% of the purchase price of a home. (For those who buy a $150,000 home, for example, that would amount to between $3,000 and $7,500 in closing fees.)”

Keep in mind that if you are in the market for a home above this price range, your costs could be significantly greater. As mentioned before, closing costs are typically between 2% and 5% of your purchase price. Trulia continues to give great advice, saying that: “…understanding and educating yourself about these costs before settlement day arrives might help you avoid any headaches at the end of the deal.”

What do closing costs include?

By now we know that when it comes to buying a new home there are many costs involved. But, what exactly do closing costs cover? They pay for expenses when buying a home that are charged by a myriad of vendors, government entities and your lending institution — all of which played some key role in securing you your new home. In addition, closing costs are payable with your down payment, but they are separate fees. The list of closing costs fees is lengthy. Some fees included are:

  • Appraisal

  • Attorney

  • Closing

  • Credit report

  • Escrow

  • Title

  • Underwriting and processing fees

  • Home inspection

  • Private mortgage insurance (PMI)

  • Property tax

  • Recording fees

  • And much more

Be sure to ask your EHL Loan Officer for a detailed list.

Will there always be closing costs?

Yes, there are always closing costs. Whether you're the buyer or the seller or even refinancing, you're going to have closing costs.

Beware of the Pre-Loan Worksheet

Sometimes, a loan officer will use pre-loan worksheets to their advantage. Why? Using this form is a way in which a Loan Officer can pitch fees before the loan estimate and early on in the mortgage process to their borrower. In turn, they often put unrealistic fees on the pre-loan worksheet, making it look attractive to the borrower. At this point, the borrower is far into the mortgage process and hooked with the Loan Officer.

Bottom Line

Closing costs may not be the most attractive part of buying a home or refinancing your current mortgage, but it's a small price to pay for the benefits that a home loan provides. Speak with your EHL Loan Officer early and often to determine how much you’ll be responsible for at closing. Finding out that you’ll need to come up with thousands of dollars right before closing is not a surprise anyone is ever looking forward to.

Find out how much you qualify for by applying for home loan with us today. It only takes a few minutes!

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