Making sense of closing costs

Even if you’ve closed on a mortgage before, each time can be a confusing process. In addition to the endless forms and required signatures, you’ll also face a wide variety of fees that get lumped together in the nondescript phrase “closing costs”.

So what’s included in closing costs? The list varies widely since each state, and even some municipalities, have their own rules about certain fees. But in general, closing costs run two to five percent of a home’s purchase price.

Several of the costs are fees for required services: an appraisal to establish the home’s market value; a title search to determine if the deed is free and clear; an underwriting fee to cover the lender’s cost in deciding they’d lend to you; an application or loan origination fee to cover processing your application; recording fees to file the proper paperwork after the loan is complete; and any commissions to involved real estate brokers.

But closing costs also include installments for the ongoing costs of your mortgage, such as property taxes to cover a prorated portion of the year; homeowner’s insurance, generally for a full year; any points that your mortgage agreement involves; and, if you’re making a down payment below 20 percent, a prorated share of private mortgage insurance.

Because states and home mortgages vary so much, including what different lenders are willing to cover, several additional costs could appear in your closing, such as fees for a survey, for pulling your credit report, or for wire transfers. Some buyers will also pay at closing for their home inspection or an optional home warranty.

A short time before closing, you’ll receive a Closing Disclosure with the exact figures on everything you’ll be required to pay. Review this carefully and talk with your lender about any costs you don’t understand.