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Mortgage Basics

MORTGAGE CLOSING COSTS

Understanding the Fees Required to Finalize Your Home Loan

Closing costs are the fees and expenses required to complete a real estate transaction. These costs are separate from your down payment and cover the services needed to process, approve, and finalize your mortgage. Whether you’re purchasing a home or refinancing, understanding closing costs helps you plan ahead and avoid surprises at the closing table.

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  What Are Closing Costs?  

Closing costs are the one‑time fees paid at the end of the mortgage process. They typically range from 2% to 5% of the loan amount and include lender fees, third‑party services, and prepaid items such as taxes and insurance.

These costs ensure that the loan is properly documented, the property is legally transferred, and all required services are completed.

What Happens at Closing?

“Closing” is the final step in buying or refinancing a home. During closing:

  • You sign all required loan documents
  • Funds are transferred
  • The title is recorded
  • Ownership officially transfers to you

Depending on your state, closing may be handled by:

  • A title company
  • An escrow company
  • A settlement attorney

Before closing, you’ll also complete a final walk‑through to confirm the property is in the agreed‑upon condition.

Types of Closing Costs

Closing costs fall into three main categories:

1. Statutory Closing Costs

These are government‑required fees, including:

  • Recording fees
  • Transfer taxes
  • State or county fees
  • Property taxes (prorated)

2. Third‑Party Costs

These fees are paid to outside service providers:

  • Appraisal fee
  • Credit report fee
  • Title search
  • Title insurance
  • Survey (if required)
  • Attorney fees (in attorney‑required states)
  • Flood certification

3. Lender Fees & Prepaid Items

These are costs associated with your loan:

  • Origination fee
  • Underwriting fee
  • Processing fee
  • Discount points (optional)
  • Prepaid interest
  • Homeowners insurance
  • Escrow account setup

Who Pays Closing Costs?

Typically:

  • Buyers pay most closing costs
  • Sellers may offer concessions depending on the contract
  • Lenders may offer credits in exchange for a higher interest rate

Certain loan programs (FHA, VA, USDA) have specific rules about who can pay what.

Can Closing Costs Be Rolled Into the Loan?

Yes — in many cases.

Purchase Loans:

Closing costs usually must be paid upfront, but seller credits or lender credits can help reduce them.

Refinances:

Closing costs can often be rolled into the new loan amount or covered with lender credits.

How to Reduce Closing Costs

  • Ask for seller concessions
  • Use lender credits
  • Compare title company fees
  • Avoid unnecessary discount points
  • Close at the end of the month to reduce prepaid interest

A good lender will help you structure your loan to minimize out‑of‑pocket expenses.

What Is RESPA?

The Real Estate Settlement Procedures Act (RESPA) protects consumers by requiring lenders to:

  • Disclose all fees
  • Provide a Loan Estimate
  • Provide a Closing Disclosure
  • Prevent kickbacks and hidden charges

This ensures transparency throughout the mortgage process.

Frequently Asked Questions (FAQ)

1. How much are closing costs?

Typically 2%–5% of the loan amount.

2. Can I negotiate closing costs?

Yes — some fees are negotiable, and seller or lender credits can help.

3. Are closing costs the same for refinancing?

They are similar, but some fees (like owner’s title insurance) may not apply.

4. When do I receive my final closing cost numbers?

You’ll receive a Closing Disclosure at least 3 days before closing.

5. Can closing costs be paid with gift funds?

Yes — many loan programs allow gift funds for closing costs.


  Have questions about closing costs or want a personalized estimate? Our team is here to guide you through every step of the mortgage process. Contact us today to get started.