What costs will I have to pay at closing?

To avoid any surprises at closing, a good rule of thumb is to set aside an amount equal to 2-3% of the purchase price to cover expenses like the following:

Prior to Closing
- Earnest money deposit: Part of your down payment, an earnest money deposit is generally due upon the acceptance of your offer.
- Home Inspection: Prepared by a qualified inspector to assess the property for defects and poor maintenance.
- Appraisal: Prepared by an appraiser chosen by the lender.

Closing Costs
- Broker fees: These fees range from processing, origination, credit report, application, house fees, etc. These fees are charged by your mortgage broker. Occasionally, a lender or the broker will charge a fee for providing the mortgage. If so, these costs should be disclosed to you at the time of signing.
- Lender fees: These fees range from underwriting, flood cert, doc prep, etc. These fees are charged by the lender that is doing your loan.
- Interest Adjustment: Monthly mortgage payments are due on the first of the month. Unless the closing date is the first of the month, you must prepay the amount of the interest accruing up to the 1st day of the following month, the Interest Adjustment Date.
- Prepaid Expenses: If the Vendor has prepaid any other expenses such as taxes or insurance, he must be compensated.
- Property Tax Hold-back: If the lender is collecting and paying property taxes you may be required to pay to the lender an amount to ensure sufficient funds are available to pay the next installment of property taxes when due.

Some mortgage companies may offer you a higher interest rate and pay your closing costs for you. Although this may seem like a good deal on the surface it may only save you money in the short term. Always run the numbers before committing to a higher interest rate, even if your closing costs are going to be paid.

Some states require an attorney to be present at the closing of real estate purchases and refinances. If your state uses title attorneys for closings expect another fee. Title attorney fees will vary and should be considered along with the total title fees when comparing closings costs.

You can also negotiate the closing costs into the purchase price so that the seller will be responsible for paying all or a percentage of your closing costs. This is known as a seller concession and 3% is normally industry standard. This way you will have no or very little costs that you will have to pay at the closing.

Other closing costs can include discount and origination points, application fee, appraisal fee, credit report fee, title report and title insurance.

It is possible that you won't have to pay any closing costs. How? If you have a large enough loan amount, it is possible that your mortgage broker may be able to get all costs include into the loan without you paying one dime.

Your real estate agent can negotiate the terms of your purchase contract to have the seller contribute closing costs. Also know as seller concessions, this is when the seller will agree to pay up to, in most cases 6% of your closing costs, which in most cases should cover almost the entire cost of the loan transaction.

» DISCLAIMER: The information contained in this article on 'What costs will I have to pay at closing?' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.