Closing Costs Explained

Buying a home can be exciting and confusing at the same time. A lot goes into the process, and there are many expenses first-time homebuyers may not be aware of. To ensure there are no surprises when you buy your first home, we’ve put together a short guide to closing costs. 

Closing costs are fees and expenses you are required to pay when you purchase a home. These expenses include a laundry list of lender fees, insurance fees, and title fees, so keep reading to discover all the fees included in closing costs. 

Lender Fees

The lender fee list is the most extensive. Within a few days of receiving your application for a mortgage, your lender will present you with an estimate for the loan, which includes the closing costs associated with your loan. These costs include:

  • Loan origination fees – this is the fee for processing your loan
  • Discount points – this is optional and applies to buying an interest rate
  • Processing fees – this is another fee for processing your application
  • Appraisal review fee – this is the fee to pay for the appraisal
  • Credit report fee – pays for the obtaining of your credit report
  • Courier fees – this fee pays for the transport of your documents back and forth between the involved parties
  • Underwriting fee – this expense pays for the process of evaluating certain aspects of the transaction
  • Document preparation – fee to pay for preparing the legal documents required for closing
  • Wire transfer fee – the cost for wiring escrow funds

Title Fees

  • Recording fee – pays for recording the mortgage and deed at the courthouse
  • Notary fee – this fee pays for the required notarization of documents
  • Title insurance – ensures the title is clean and that there will be no contentions against you as the new owner of the house
  • Escrow fee – a fee paid to the escrow company or the attorney who attended the closing

Insurance Fees

  • Private mortgage insurance (PMI) – if your down payment was less than 20 percent, your lender may require you to have PMI, which will be included in your monthly mortgage payment
  • Homeowner’s insurance – required by lenders to protect your property from damage and theft
  • Flood insurance – if the home is located in a flood zone, your lender will require this insurance

The amount of each of these fees varies from lender to lender and state to state. You should contact your lender to discuss these fees, so you have an idea of how much you’ll need at closing. On occasion, the seller may pay the closing costs for you or the lender may opt to include the closing costs in your loan, but typically, the buyer is required to pay these costs at closing.

Without a doubt, buying a home is as confusing as it is exciting, but by understanding the guide above, you should feel comfortable with the closing costs associated with your home loan.