Throughout the shopping phase of buying a home, choosing a lender and settling on a mortgage program, the words closing costs are tossed around frequently.
Closing costs are an assortment of fees based on the transaction between the seller and the buyer of a home (fees based on the closing of the transaction, hence the name). They are fees that are collected by the escrow company at the signing appointment, usually a day or two before the transaction is recorded.
Some closing costs, such as excise tax on the sale and real estate commissions, are the responsibility of the seller. Some closing costs, such as the cost of the escrow company, are split between the buyer and seller. Many of the closing costs are related to the buyers mortgage and these are the buyer’s responsibility.
One of the largest costs associated with the mortgage is the “loan origination fee” or the fee charged by the lender to provide the loan. This varies between lenders and is something that should be considered when shopping for a lender. Some buyers, at times, will elect to pay a separate fee to “buy down” or lower the interest rate. Lenders can also charge for appraisal, title insurance, courier fees, etc.
In addition to closing costs, the escrow company will be instructed by the lender to collect “pre-payment amounts”, also referred to as “pre-paids.” These pre-payments are for such things as real estate taxes, insurance, etc.
The kind and amount of closing costs you will incur will depend on your loan, your lender and the home you decide to purchase. Upon making your initial loan application, your lender will provide you with a Good Faith Estimate which will give you a better idea of what to expect.