Before you get the keys and call your new house “Home,” there’s a final financial aspect to navigate: closing costs. Mortgage closing costs are the fees and expenses you’ll encounter when finalizing your home purchase.
Whether you’re a first-time homebuyer or have navigated the mortgage process before, it’s important to know the various costs involved when buying a home. You'll be surprised how understanding them can make your homebuying experience smoother, more predictable, and, most importantly, more enjoyable.
To help you navigate this financial aspect of homeownership, we’ve compiled 15 essential mortgage closing costs every homebuyer should know.
Mortgage closing costs are the expenses that homebuyers and sellers incur when finalizing a real estate transaction. These costs typically include fees associated with the mortgage loan, property purchase, and the legal and administrative processes involved in transferring property ownership.
Closing costs are typically 3% – 6% of the loan amount. If you take out a mortgage worth $400,000, you can expect to add closing costs of about $12,000 – $24,000 to your total loan cost.
The application fee is a one-time fee charged by the lender to process your mortgage loan application. It covers administrative expenses associated with reviewing your credit, verifying your financial information, and initiating the underwriting process.
An appraisal fee covers the expense of a professional appraiser evaluating the property's value to ensure it aligns with the loan amount and lending guidelines. This cost can vary but usually ranges from $300 to $600.
In some states and Canada, you'll need an attorney to help with the closing process. Attorney fees vary, but you can expect to pay a few thousand dollars for their services.
A closing fee is a charge by the title company or attorney to facilitate the closing process and ensure that all necessary documents and funds are properly managed and distributed during the real estate transaction.
A courier fee is a charge for the secure and timely delivery of important documents and paperwork between various parties involved in the closing process, such as the lender, title company, and escrow company.
A credit report fee is the cost of obtaining and reviewing your credit report from a credit bureau to assess your creditworthiness as a borrower.
Escrow accounts are set up to hold money for property taxes and homeowners insurance. Lenders use these funds to ensure these payments are made on behalf of the borrower.
You'll need to prepay your first year of homeowners insurance before closing. The cost varies widely based on your location and the coverage you choose.
While not always a mandatory cost, a home inspection is highly recommended when purchasing a resale home. A professional inspection can cost anywhere from $300 to $500 but can save you from costly surprises.
Title insurance protects both you and the lender from any issues with the property's title, such as undisclosed liens or ownership disputes. Costs vary by location but are typically a few thousand dollars.
The loan origination fee is charged by your lender to cover the cost of processing and underwriting your loan. It's typically a percentage of the loan amount, usually around 1% of the loan.
Your lender will require you to pay private mortgage insurance (PMI) if you put less than 20% down at closing on a conventional loan. PMI protects the lender if you default on your loan.
The property tax fee in mortgage closing costs involves prepayments or adjustments to cover property taxes. It ensures that property taxes are current and the buyer assumes responsibility for taxes from the closing date forward.
These are fees paid to the local city or county government for recording the sale of the property. The cost varies depending on the location but is usually a few hundred dollars.
Transfer taxes go to your local government in exchange for updating your home’s title and transferring it to you. Like most other local taxes, this fee will vary depending on where you live.
Mortgage closing costs in the US and Canada differ mainly in structure and components. In the US, closing costs can vary widely by state, with fees like loan origination and title insurance being common.
Canada has a more standardized approach, with federal and provincial taxes like the GST and provincial land transfer taxes being prevalent. Legal representation is more common in Canada, while it's not always required in the US. Understanding these differences is essential for homebuyers in each country to navigate their unique closing cost landscape.
Feel free to shop around for the best closing costs. Different lenders and service providers may offer different rates and fees. Get multiple quotes and compare them to ensure you're getting the best deal.
Mortgage closing costs are an unavoidable part of the homebuying process. Being aware of these expenses and budgeting for them can help you avoid financial surprises and ensure a smooth transition into your new home. Consult with your lender and real estate agent to fully understand your closing costs and prepare accordingly.
We’re proud to help our homebuyers feel comfortable, informed, and in good hands from the first time we connect to long after they’ve moved into their new home. Our team is continuously committed to doing the right thing, cultivating an exceptional customer experience, and creating the best places to call home.