If you’re in the home buying process right now, you’ve no doubt heard the words “closing costs”. But do you know what those are exactly? This set of costs that you pay on the day you sign the loan papers to own your home include several different items. Closing costs include the work of the people and entities that have helped make the transaction possible — people like your mortgage lender, the title company and the real estate attorney.
Escrow Deposit — you may be required to have two months of property tax and mortgage insurance payments put into an escrow account.
Homeowner’s Insurance — typically, you will be required to pay a full year of homeowner’s insurance upfront at closing.
Origination Fee — this fee is usually 1% of your loan amount to cover the lender’s administrative costs to process your loan.
Pro-rata Interest — if your closing happens on a random day in the middle of the month, the rest of that month’s loan interest will be pro-rated and included in the closing.
Property tax — you’ll most likely pay the pro-rata property taxes on your new home through the end of the year.
Typical closing costs for a home purchase will total three percent to six percent of the home’s purchase price. And, you’ll know what the total is before you complete the deal. The average is around $5,700 in the United States, and you’ll see an estimate of the costs three days prior to your closing date.