Closing Costs
Closing costs are the fees and expenses incurred by the buyer and seller to complete a real estate transaction beyond the property's purchase price. These costs typically range from of the loan amount and include lender fees, title charges, government recording fees, prepaid items, and third-party service fees.
What This Means
What Closing Costs Include
Closing costs encompass a broad category of charges that fall into several groups:
- Lender fees: Origination charges, application fees, underwriting fees, and discount points.
- Third-party fees: Appraisal, credit report, flood certification, and survey costs.
- Title and settlement: Title search, title insurance premiums (owner's and lender's policies), settlement or closing agent fees, and attorney fees where required.
- Government charges: Recording fees, transfer taxes, and state or local documentary stamps.
- Prepaid items: Homeowners insurance premiums, property taxes prorated to the closing date, prepaid interest from closing to the first payment date, and initial escrow deposits.
Disclosure Requirements
Under the TRID (TILA-RESPA Integrated Disclosure) rule, lenders must provide a Loan Estimate within of receiving a mortgage application and a Closing Disclosure at least before closing. These documents itemize all closing costs with specific tolerances that limit how much certain fees can increase between estimate and closing.
Reducing Closing Costs
Borrowers may negotiate seller concessions (credits from the seller toward buyer closing costs), request lender credits in exchange for a higher interest rate, or shop for third-party services such as title insurance and home inspections. Maximum seller concession limits vary by loan program and occupancy type, ranging from of the purchase price depending on the program and down payment amount.