Closing costs are the fees that are charged when you buy a house. Many other costs are associated with buying a house than only the down payment. These closing costs are fees like recording fees, title policies, courier charges, inspections, lender fees, and start up reserve fees to create an impound account.
The most expensive component of these closing costs is the lender charged fees. Such closing costs are charged beyond the home’s purchase price. Most closing costs are set and predetermined, meaning that they are not open to negotiation.
The total price of closing costs is fairly standard. Typically, a good guideline for closing costs is that they will run you somewhere between two and four percent of a house’s purchase price. The range is as large as this spread because the origination fees and points for making the loan vary significantly from one lender to the next. These points and origination fees that are charged by the lender are always revealed to a buyer in the Good Faith Estimates that are provided to the buyers. For example, a home that is $400,000 will have closing costs that run from around $4,000 to $16,000. They could be even higher than this amount, on some occasions.
Some closing costs are of the non-recurring kind. Such fees are charged to a buyer of a house on only a single time. They include escrow or closing, title policies, courier fees, wire fees, notary charges, endorsements, attorney costs, city or county or state transfer taxes, recording, natural hazard disclosures, home protection plans, lender fees for the HUD-1 800 line, and home inspections.
Other closing costs are called prepaid closing costs, or recurring closing costs. Although these are paid for in a single lump sump up front, they cover those costs that continue to recur throughout the life of the home loan. There are comprised of property taxes, flood insurance when required, fire insurance premiums, prepaid interest, and private or mutual mortgage insurance premiums.
Closing costs are also impacted by the month of the year in which you close on the house in question. This is because future insurance and tax payments will be collected on a pro rated basis for the number of months of premiums for the year. Not all loans come with an escrow or impound account either. Yet loans that are for in excess of eighty percent of the purchase price of your house will mandate such an escrow account and impound be established.
Closing costs are some of the unfortunately high expenses associated with buying a house. They are only avoidable when a person takes over an assumable mortgage. In these cases, most closing costs, such as lender points and origination fees, are side stepped by a buyer.