How much are mortgage closing costs?

What are mortgage closing costs?

Closing costs are the upfront fees and other costs you pay to get your mortgage and transfer ownership of the home (CFPB). They are separate from your down payment. Together, the down payment and closing costs, minus any deposit and credits, make up your cash to close.

The CFPB's Your Home Loan Toolkit splits them into two groups:

• Loan costs: origination charges, discount points, services the lender requires (such as the appraisal and credit report), and services you shop for (such as title and settlement).
• Other costs: taxes and government fees, prepaid items such as homeowner's insurance and interest, the initial deposit to your escrow account, and other items such as optional owner's title insurance.

How much do closing costs typically run?

Freddie Mac puts the approximate cost at 2% to 5% of the purchase price. Use that only as a planning range. The CFPB toolkit notes that loan costs can vary widely from lender to lender and suggests asking local real estate and title professionals about typical costs in your area.

Several things push the number up or down:

• Whether you pay points to lower your rate, or take a lender credit.
• State and local transfer taxes and recording fees.
• Title insurance rates, which vary by state.
• How many months of insurance and taxes your escrow account needs at closing.
• Upfront mortgage insurance premiums or funding fees on some FHA, VA and USDA loans.

Which closing costs can you shop for?

Section C of your Loan Estimate lists services the lender requires but lets you shop for, such as your settlement agent and title services. The lender must give you a list of providers. You can pick one not on the list, but check with the lender first (CFPB).

The CFPB toolkit says that in some states, borrowers who shop for a closing agent could save hundreds of dollars. When you compare title insurance, compare the bottom-line total. The seller cannot require you to buy title insurance from a particular title company.

You also choose your homeowner's insurance company. You cannot shop for Section B services, such as the appraisal, but you can compare their totals across lenders.

How much can closing costs change before closing?

Federal rules limit increases between your Loan Estimate and closing, unless there is a valid changed circumstance (CFPB TRID compliance guide):

• Cannot increase: fees paid to the lender, the mortgage broker or their affiliates; fees for services you were not allowed to shop for; and transfer taxes.
• Can increase up to 10% in total: recording fees, plus required services from an unaffiliated provider when you can shop and choose from the lender's list.
• No set limit: prepaid interest, insurance premiums, escrow deposits, and services from a provider you found yourself off the lender's list.

When do you see your final closing costs?

Your lender must give you a Closing Disclosure at least three business days before you close. It is a five-page form with your final loan terms and costs. For this rule, a business day is every day except Sundays and federal public holidays.

Use those three days to compare the Closing Disclosure with your latest Loan Estimate line by line. If something is wrong or unexpected, contact your lender or settlement agent right away. You can also ask to see the promissory note and security instrument before you sign.

How do you pay closing costs at closing?

Your Closing Disclosure shows your final cash to close. The CFPB says you usually pay it by cashier's check or wire transfer, and the lender will need proof of where the money came from. Plan ahead if your funds are in savings or investment accounts that take time to move.

Before you wire money, call your settlement agent at a phone number you already know to confirm the instructions. Do not rely on wiring instructions that arrive only by email. If the final amount differs from what you planned, ask your lender or settlement agent to walk you through each change before closing day.

How can you lower your closing costs?

• Get at least three Loan Estimates and compare Section A and lender credits. Use the lowest offer to negotiate with the lender you prefer.
• Shop Section C services, especially the settlement agent and title services.
• Consider a lender credit, which lowers upfront costs in exchange for a higher rate. Points do the reverse. Compare the trade-off over how long you expect to keep the loan (CFPB).
• Ask about discounts, such as for completing a homebuyer education program.
• Negotiate seller credits in your purchase contract. Loan programs cap how much the seller can contribute, so ask your loan officer first.
• Shop homeowner's insurance, since the first year's premium is often paid at or before closing.
• Fix credit report errors before you apply, since a better credit profile can affect your pricing.

Be careful with "no closing cost" offers. The CFPB notes the catch is usually higher monthly payments.