Closing costs are the fees related to your mortgage that are charged by your lender and third parties. These fees are above what you paid for your down payment and are paid by the buyer in most cases. The average amount that buyers pay for closing costs can vary widely based on the purchase price of your home and other factors.
Common Closing Costs
Closing costs fall into three basic categories: attorney fees, lender fees and third party fees. Attorney fees cover the cost of having all of your loan documents reviewed and ensuring all the necessary procedures are followed during the acquisition process. Attorneys are not engaged or for this purpose in the state of Utah, whereas some states require the use of attorneys.
Lender fees include an origination fee for processing the loan paperwork, title fees, underwriting fees, escrow deposits and discount points. Third party fees pay for things like the appraisal and inspection on the home, recording fees to the county, credit report fees, and any impounds for homeowners insurance or property taxes.
Reducing Closing Costs
Paying closing costs out of pocket at the time your mortgage closes is usually the easiest, least expensive way to take care of these fees. If buying a home has made you a little strapped for cash, and you’d like to reduce your out-of-pocket closing costs, there are a few options available to you.
In a buyer’s market where offers are few and far between, a seller may be willing to pay a portion of the closing costs. In a seller’s market, where multiple offers and bidding wars are common place, a seller may be unlikely to agree to this stipulation, and they may accept another bid over one which would lower their net gain. In today’s housing market, asking the seller to pay closing costs must be asked for and negotiated in the terms of your offer to purchase. This cannot be suggested or negotiated by your lender.
Another option to get your closing costs covered is asking the lender to take care of the closing costs for you. While this option will save you more in upfront costs at the time of closing, it will probably cost you more in the long run. The lender may offer you a no-closing costs mortgage, but this type of mortgage usually has a higher interest rate. The other option is for the lender to roll the closing costs up into your mortgage if your loan type provides for this option, and spread the payment out over the life of the loan, but you will be paying interest on the fees the whole time.