Closing Costs

What are closing costs? This is a VERY common question that I am asked. And it is very quickly followed up with...how much are closing costs? Most of the time they will be less than 3% of the purchase price. The percentage might be higher, the lower the purchase price. Let me first describe closing costs...they are the costs associated with escrow.

Title Insurance: $1,000
Escrow fees: $500
Notary fees: $150
Misc fees: $500

This is not the end of the story...closing costs also include the fees associated with obtaining a mortgage. Typical fees for a mortgage are 1-1.5%...to the mortgage officer (this is also known as "origination fee"...or "broker fee"). The lender is also going to add fees. As you can see we are quickly approaching the 3%.

Lastly, pre-paids are part of closing costs. When you close a loan...you are required to pay interest for the rest of the month in which the loan funds (example...the loan funds on May 15th...31 days in May...you would owe pre-paid interest for 16 days...the actual cost depends on your interest rate). Also, the lender may require you to pay pre-paid insurance. And it is likely that you will be responsible for paying a portion of the years taxes.

When negotiating closing costs with your lender..the areas with the most wiggle room are the "mortgage fees". Title insurance and escrow fees are going to be mostly the same from company to company...however, a lot of mortgage officer's require a lot of other fees (like processing fees, etc...). The biggest area of negotiating is the "origination" or " broker" fees.