Closing Costs
What are Closing Costs
When you buy a home or refinance there are fees and costs in addition to your down payment. These additional costs are called closing costs. These comprise of financing fees, title & escrow fees, government fees, along with property taxes and homeowners insurance. If you are escrowing your property taxes and homeowners insurance that means those payments will be made from your monthly mortgage payments. Prefunding this escrow account, much like a savings account, can be included in your closing costs, but in reality they are future costs of homeownership not one time fees.
Who Pays Them
In general the buyer or borrower pay the closing costs, however that is not always the case. Buyers and borrowers can be credited the money for these fees by the seller, buyer’s agent, and or lender.
Seller Credits: These can often arise in negotiations. Rather than a lower purchase price, buyers can ask sellers to pay closing costs.
Buyer’s Agent Credits: While rare, your buyers agent can credit part of their commission back towards your closing costs. This usually only happens if the agent is a family member. Remember the buyer’s agent commission is usually paid by the seller.
Lender Credits: Borrowers can take a higher interest rate from lenders in return for lender credits. These credits will save you on closing costs in exchange for higher interest payments over the life of the loan.
Where to Find Closing Costs: Loan Estimate & Settlement Statements
When you buy a home you will see the closing costs listed out on the loan estimate and the settlement statement. The loan estimate is the best way to compare lenders. Lender fees should be evaluated off the 2nd page of the loan estimate where closing costs are listed. Section A & B are lender specific fees. All other closing cost sections are not based on the lender you chose. Evaluate your lender off of A & B only. Tricky lenders will make the closing costs less in other sections they are not responsible for and those will go up once you are in escrow. Don’t compare lenders based on the total amount of closing costs.
