One of the things prospective homeowners worry about most is paying the closing costs. These are costs associated with closing on a home loan and building an escrow account for the payment of property taxes and homeowner’s insurance. Many homeowners choose to roll taxes and insurance into their mortgage, which will ultimately affect the amount of their closing costs.
The Good Faith Estimate
After a seller accepts your offer on a home, the bank will begin a process called “underwriting.” This is the process by which your lender outlines the terms and conditions of your loan, including the expected closing costs. The preliminary estimate is usually higher than your actual costs, and is referred to as the “good faith estimate.”
What’s in My Closing Costs?
You can expect your home’s closing costs to be between 2% to 5% of your purchase price. Generally, closing costs include:
- The application fee for the mortgage
- The appraisal fee, which is conducted by an independent company
- Attorney’s fees for closing and titling
- Escrow fee, which is paid to the title company
- Your credit check fee, and
- Deposits for escrow (property tax and insurance), if you choose to roll these into your mortgage
Paying for Closing Costs
Many homeowners save for months, even years, to pay their costs by check at date of closing. However, some loan programs allow you to roll the closing costs into your mortgage. FHA loans, for example, allow this option. If you’re worried about paying your closing costs, talk to your lender about your options before getting pre-approval.