What are Mortgage Closing Costs?

Before you finance your property, learn what are typical mortgage closing costs first. Read on for mortgage closing fees explained in plain English.

What are Mortgage Closing Costs?

Taking a mortgage loan will cost more than just a down payment - Mortgage lenders will also bill you for a list of one-time fees known as mortgage closing fees.

These closing costs are fees imposed by lenders to arrange and underwrite a property loan for you. It also includes professional appraisal fees to confirm the ownership, value and condition of the property that you're buying.

According to BankRate.com, the average mortgage closing costs in the United States add up to $3,754. This figure does not include taxes, government charges or escrow fees.

While we're on the topic of closing costs, it's essential we explain what are good faith estimates as well:

When you're are applying for your mortgage loan, lenders will provide you an item-by-item list of fees including loan fees, prepaid charges, inspections, title insurance, taxes and other fees. This estimate of expenses prepared by your lender is a good faith estimate.

It's important to understand that good faith estimates are just rough estimates - Don't be surprised if your eventual mortgage closing fees turn out to be much higher when the loan is finalized. In the United States, lenders are required by law to give you a good faith estimate.

No Closing Cost Mortgages Explained

Forking out the down payment for a property is a heavy burden by itself, so it's no surprise that some buyer struggle to pay the thousands of dollars in closing costs upfront.

If that sounds like you, then mortgages with no closing costs are a good alternative that you can consider.

Of course there is no free lunch (especially with mortgage lenders) - In exchange for a waiver on your mortgage closing fees, you will end up paying higher mortgage rates (typically 0.25 to 0.375% more)

For example: You take a mortgage loan of $200,000 at 5% interest. Let's say you go for the option with no closing costs, then this bumps your interest rate up to 5.25%. Assuming that your mortgage is 15 years, you will ending paying $4,710.27 more over the lifetime of the mortgage ($289,395.98 vs $284,685.71)

Another alternative to waive your mortgage closing fees is to request the lender to add or "roll in" the closing fees to the total mortgage amount.

For example: Let's assume an average mortgage closing fees of $4,000 for your mortgage loan. If your mortgage loan is $200,000, you can request your lender to combine them so you will be borrowing a total of $204,000 instead.


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