What Are Closing Costs?

You’ve probably heard the phrase:

“Closing costs.”

But what does that actually mean?

Simply put, closing costs are the various expenses involved in completing your home purchase and, if applicable, your mortgage.

And here’s the important part:

There isn’t one universal closing-cost amount.

It depends on the property, loan, lender, location and transaction.

What Might Be Included?

Depending on your purchase, closing costs may include things such as:

Loan Costs

If you’re financing the purchase, your lender may charge various fees related to originating and processing the mortgage.

Your lender will provide information about these costs.

Appraisal

If an appraisal is required by the lender, there may be an appraisal fee.

Title-Related Costs

Title services help address ownership and title-related matters.

Depending on the transaction, you may have title search, title insurance and other title-related expenses.

Attorney Fees

In transactions where attorneys are involved, you may have attorney fees associated with the purchase and closing.

Recording Fees

Government recording fees may apply when documents are recorded.

Prepaid Expenses

You may need to pay certain expenses in advance, such as:

• Property taxes
• Homeowners insurance
• Mortgage interest

Escrow Funding

If your lender establishes an escrow account, you may need to fund it with money for future taxes and insurance.

Why Does the Number Keep Changing?

This is something buyers sometimes find frustrating.

You may receive an estimate early in the process.

Then another estimate later.

Then a final figure.

That’s because many costs depend on information that becomes more precise as the transaction moves forward.

Your closing date can affect prepaid interest.

Tax information may be updated.

Insurance costs become known.

Loan terms may change.

Credits may be applied.

The early estimate isn’t necessarily the final number.

What About the Down Payment?

Your down payment is separate from many of the fees people refer to as closing costs.

But both may be included in the amount you need to bring to closing.

That’s why you’ll often hear the term:

Cash to Close

Cash to close generally reflects the total amount you need to provide at closing after accounting for credits, deposits and other adjustments.

Your lender and closing professional will provide the actual figures for your transaction.

What About Earnest Money?

If you paid earnest money when you made your offer, it may be credited toward your purchase according to the contract.

That means you aren’t necessarily bringing that same money again.

Your closing statement will show how it is accounted for.

What About Seller Credits?

Sometimes a seller agrees to contribute toward certain buyer costs.

But there are limitations.

The amount and permitted uses can depend on the contract, loan program and applicable rules.

Your lender should confirm what is permitted.

Don’t Compare Your Closing Costs to Someone Else’s

Your friend may tell you:

“My closing costs were only $7,000.”

That doesn’t mean yours will be.

They may have had:

• A different purchase price
• A different loan
• A different tax situation
• Different insurance costs
• Different credits
• A different closing date
• Different title or attorney costs

Your transaction is your transaction.

Ask Questions

When you receive your closing figures, don’t be afraid to ask:

“What is this charge?”

“Why am I paying this?”

“Is this required?”

“Has my earnest money been credited?”

“What is my final cash-to-close?”

Those are reasonable questions.

The Bottom Line

Closing costs aren’t one single fee.

They’re a collection of expenses associated with completing your purchase and mortgage.

The best thing you can do is understand the categories, review the estimates your lender provides, and ask questions when something doesn’t make sense.

Don’t be embarrassed to ask.

You are the one paying the bill.

Note: Closing costs vary by transaction, lender, property and location. This page is educational and is not financial or legal advice. Your lender, attorney and closing professionals can provide the specific information for your transaction.

Have a Question?

Buying a home comes with a lot of questions. You don’t have to figure everything out on your own.

Have a question about something you read here? Want to talk through your situation? Or just not sure what your next step should be?

I’m happy to help.

Schedule a Time to Talk With Karyn

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