Buying a new property or even opting for a refinancing option, you need to stay prepared for the closing costs. Unfortunately, many homeowners are unaware of these costs at the time of their purchase and end up taken by surprise. But closing costs are a natural part of mortgage and property purchases.
Closing costs are the fees and expenses you as a buyer pay at the time of securing a loan, in addition to the down payment. This may be anywhere between 3 and 5 percent of the total loan amount. The major aspects of the closing costs are discussed below.
Loan origination fees for processing and underwriting the loan add up to 1 percent of the loan amount at most and are a significant part of the closing costs. This is given to the lender for processing, checks, and so on.
Other major components of the closing costs are appraisal and survey fees. Appraisals and surveys help gauge the market value of your home, allowing you to secure a loan for the right interest rate without much hassle. Title insurance, private mortgage insurance, mortgage points, and so on are also part of the closing costs. While some may be paid by a seller in a buyer’s market, buyers generally end up paying up to 5% of the loan amount.
Closing costs also include transfer tax to transfer title from seller to buyer, recording fees for public land records, and rate lock fees to fix a particular interest rate for the loan.
Shopping around can help you choose the best option for closing costs. Scheduling the closing closer to the month-end and comparing estimates also enables you to browse multiple options and minimize the closing costs.