What is in the number
On a $300,000 loan, closing costs run from $6,000 to $15,000, and they fall into four groups. The lender charges origination and underwriting fees, often 0.5 to 1 percent of the loan, plus any discount points you choose to buy, each costing 1 percent of the loan in exchange for a lower rate. Third parties charge for the appraisal, usually $400 to $700, the title search, the lender's title insurance, the optional but sensible owner's title policy, and the settlement agent or attorney. Governments collect recording fees and transfer taxes, which vary from nothing to more than 1 percent of the price. Finally come the prepaid items: the first year of homeowners insurance, daily interest through the end of the month, and an opening escrow deposit covering a few months of taxes and insurance. Prepaids are your own future bills, not fees, yet they demand cash all the same.
The two documents
Every lender must issue a standardized Loan Estimate within three business days of your application. Collect three on the same day and compare the second page. Section A lists the lender's own charges and gives the honest comparison, while Section C lists the services you are allowed to shop for yourself. The Closing Disclosure arrives at least three business days before closing. The lender's own fees may not rise above the estimate, and a second group of charges may rise by no more than 10 percent in total.
Lowering the bill
- Ask each lender to match a competitor's lower origination fee.
- Shop the title and settlement services, where prices vary widely.
- Request a seller credit toward closing costs, which loan rules usually cap at 3 to 6 percent of the price.
- Consider a lender credit, which trades a slightly higher rate for lower costs and makes sense if you may move within a few years.
Points pay for themselves only if you keep the loan past the break-even point, which is commonly five to seven years.
After the keys
Cash to close equals the down payment plus closing costs and prepaids, minus your earnest money and any credits. The spending continues with movers, a locksmith, the repairs flagged in the inspection, window coverings and a lawn mower. Several thousand dollars in the first months is normal, so do not let the closing empty your emergency fund.
Note Criminals send emails that imitate the title company and supply new wiring instructions days before closing. Confirm any instructions by calling a number you obtained independently, because wired money is rarely recovered.
