How much will closing costs be?

This amount is dependent on a number of factors including:

Underwriting or processing fees vary from lender to lender. Compare your Good Faith Estimate from each lender you talk to.

All closing costs should be disclosed on the Good Faith Estimate. However, some unscrupulous loan officers will avoid disclosing some of the costs, or will make the costs seem lower than they actually are. They do this to win your business, and then when the fees suddenly increase at closing, they blame it on 'changes in the market' or some other obscure reason. This is called a 'bait and switch'.

Look out for loan officers who may be using these techniques. If a certain estimate seems particularly low, it may be because you're being lied to. Ask the loan officer about it - perhaps they can provide an explanation. Whatever you do, do not decide to work with a loan officer solely on the basis of who has lower fees. You should also take into account whether or not the loan officer listens to your needs and concerns, and addresses them. You need to work with somebody you trust, an somebody who has your best interests at heart.

Sometimes the lender or mortgage broker will pay part or all of your closing costs and in return you will pay a slightly higher rate on your mortgage.

Closing costs may vary depending on the loan program that you are going with. Some loans may cost more or less depending on what is required to close the loan.

Many closing costs are used to pay for certain fees that will come due in the future. Two common examples of fees that often require prepayment are Homeowner's Insurance premiums and Property Tax bills.

Closing costs can also vary depending on the time of year you close on a purchase of a new home. The taxes are generally prorated and you may get a tax credit that will lower the amount of your closing costs. The time of year you close determines the amount of your tax credit.

Also, closing towards the end of the month will lower your closing costs. The lender requires you to pay days of interest from the time you close until the end of the month. Closing towards the end of the month lowers this cost.

The "Origination" fee on your Good Faith Estimate is the money that you're paying to the broker or loan officer and their company. If you see fees listed in the "Discount" area, make sure that the company you are working with is actually buying your rate down.
Discount points are used to pay the lender additional fees to get you a lower rate. Sometimes, you'll find shady companies that put their fees here to trick you. Make sure when comparings fees from one company to another, that you're comparing apples to apples (Same rate/program, Similar fee structrue, etc.) so that you can clearly see which deal is better for you.

Many brokers will work with you to help you the loan to fit your needs. If you want or need the lowest closing costs possible, or the lowest rate possible let your mortgage consultant know and they can adjust the specifics of the loan accordingly. The lowest closing costs typically result in a higher interest rate, and conversely the lowest rate will come at the expense of higher closing costs. Your broker may also be able to run an cost benefit analysis to determine how long it will take for you to see any benefit from rate buydowns, etc.

Some states may levy taxes on mortgage, which can significantly increase the closing costs for home buyers. These mortgage taxes are usually in a percentage, and depending on the states, they can be as high as more than 2% of the loan amount.

A good approximate value is 3% of the loan value. This is a good value to use if you have not gotten a Good Faith Estimate from your loan officer yet.

No closing costs loans are available. Generally the lender or mortgage broker will pay the closing costs and then offset those cost by charging a higher interest rate. The cost is the same to the borrower, it just depends if you want to pay the costs upfront or over the life of the loan.

It is common for a variety of costs to be associated with the purchase of a real estate. However, there is not set rule as to which party is to pay what cost. Those cost can be borne by the either the buyer or the seller depending on the loan program.

» DISCLAIMER: The information contained in this article on 'How much will closing costs be?' 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.