Buying a home always involves closing costs. How much and who pays vary from one transaction to another.
Here are five things you should know:
1. There Are Many Types of Costs at Closing
Examples include escrow or settlement charges, title search and owner's and lender's title insurance, document or recording fees, credit report fee, appraisal fee and loan origination fee. Which costs will be part of your transaction and how much the costs will, well, cost, depends on where you live, the type of mortgage you get, the type of property you're buying and other factors.
2. You Don't Have to Pay All Your Closing Costs Upfront
If you don't have a lot of cash, you might want to save what you have for your down payment or other expenses like moving or new furniture. One way to do that is to finance your costs through a higher interest rate on your mortgage. Another way is to negotiate for the seller to pay some of your costs for you. Many places have local customs about who pays what. Those customs are negotiable.
3. You Can Buy a Home Without Paying Closing Costs
If you choose a loan without costs, your costs don't simply disappear. Instead, the lender pays the costs for you in exchange for you paying a slightly higher interest rate for your mortgage. This strategy allows you to pay the costs over time rather than upfront. A no-closing-costs mortgage can help you make a bigger down payment or buy a home with less of an upfront investment.
4. Closing Costs Are Disclosed on the Loan Estimate and Closing Disclosure Forms
You should receive a three-page Loan Estimate when you apply for a mortgage and five-page Closing Disclosure before you sign your loan documents.
The Loan Estimate shows your loan amount, interest rate, monthly payment, estimated costs and an estimate of how much money you'll need to pay at closing. Some of the costs can change before you close; others can't. The Closing Disclosure shows similar information with a lot more detail about the specific costs you and the seller will need to pay to complete your transaction.
If the terms of your loan change before you close, you may be given an updated Loan Estimate and more time to review it.
5. Reading Your Loan Estimate and Closing Disclosure is Smart
The federal Consumer Financial Protection Agency designed these forms and introduced Oct. 3, 2015, to help you understand your mortgage and estimate the costs you'll have to pay. While the forms may look simple, they contain a lot of important information that you should read very carefully. When you receive the Closing Disclosure, compare the information on that form to your latest Loan Estimate. If you find any discrepancies that you don't understand or if you have other questions about the forms, your costs or how much you'll need to pay and when, ask your real estate agent or loan officer to explain the information to you.