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Simplifying and understanding closing costs

If you are planning to buy or refinance a home, you’ll want to familiarize yourself with closing costs and how they impact your mortgage loan as part of the loan process.

Closing costs are the fees you’ll pay in order to finalize your mortgage, regardless of whether you are purchasing or just refinancing. Closing costs fall into two categories: recurring and non-recurring. Non-recurring fees are paid just once. These can include loan fees, title insurance or escrow fees, brokerage fees, recording fees, credit and appraisal costs, prepaid homeowner’s insurance or warranties, and other fees depending on the lender or type of loan.

Recurring fees can include private mortgage insurance (PMI), property taxes, homeowner’s association fees, and interest payments.

Review the loan estimate carefully
The loan estimate gives an initial accounting of the closing costs associated with the loan you’re considering, based only on the initial input of information. When you apply with a lender, they must supply you with a loan estimate within three days of application. As the loan proceeds, you will be provided updated loan estimates when figures are revised due to new information received. Factors that could alter your estimate include property type, title or escrow fees and county fees. Read it carefully, ask questions, and be sure you understand all of the costs before moving forward.

How much are closing costs
The short answer is: it all depends. There is no standard closing cost, as your circumstances and your location will factor heavily into how much you owe. Your lender will review your property and consider all of the resources or services being used in order to compile the final amount for your closing costs. These considerations include the costs of brokers, attorneys, inspectors, and appraisers. Once all of the costs have been confirmed, the lender will provide you with a final closing disclosure, which must be done at least three days prior to the signing of your loan. As with the loan estimate, you will need to review it carefully and understand all of the details, as this is your last opportunity to discuss or dispute a fee that was not previously disclosed to you on the loan estimate.

Negotiating closing costs when purchasing a home
It is not uncommon for home buyers to ask that the seller or real estate agent help pay some of the closing costs or fees. Just be sure to talk to your lender first, so you can determine the amount or percentage each party will pay and what happens if there is more credit negotiated than the final fees. Rules regarding how much the seller can pay towards closing costs depends on the type of loan you have.