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What should I expect to pay in closing costs for my new home loan?

Many times customers end up paying more than they need to in closing costs when closing on their new home loan. It is important to be educated about what closing costs should be, and what types of charges are excessive. Closing Costs are broken down into different areas on a “Good Faith Estimate” and it’s important to understand what each section means.

Every section has number next to it, so to clarify the Good Faith Estimate, I’ll break down the line items by number. 

Section 800 to 823 Lenders/Bank Charges

This is the section where your mortgage specialist has the most flexibility in trying to charge excess fees which can increase their bottom line. Points are listed out in this section as well. Points should only be paid if you are trying to buy down the interest rate, if not… the mortgage specialist is trying to increase their overall profit in the loan. DON’T PAY POINTS unless you are given a breakdown of your interest rate with points and without points and see how many months it would take to recoup those costs by doing a comparison of the two. After comparing the two sets of numbers, take the amount of the charge and divide it by the amount you would be saving when compared to the loan without paying points.

Other charges in this area include appraisal, underwriting, processing, credit report, and commitment fees. These fees vary depending on the loan program but you should not pay more then $900 total in this section. If they are higher most likely your loan specialist has increased those charges to make additional profit.

Section 1100 Title Fees

On any purchase the seller and buyer have to pick up certain costs of the title policy. The title policy makes sure when you buy a home that there are no liens against the property. This also covers the costs of closing the loans through a title company which is required on any transaction. These fees can be as low as $500 and be as high as $1500 depending on where you close and the purchase price of your property. This does not include transfer stamps which may need to be bought depending on the city you purchase in. Check with your Realtor about these transfer stamps. Mortgage specialists don’t have any control of these costs and they can’t increase these costs on their own. As a consumer you are protected against charges being added into this area.

On average, closing costs really shouldn’t be higher than $1700 on any transaction. If they are you may want to consider questioning your lender about what each of the fees are actually for to determine if it’s justified.  If you feel like the answer is dishonest or vague, you may be paying too much in closing costs.

Pre Paid Items- why you will need additional money to close.

Pre Paid items need to be paid at closing too and are not part of the cost of writing or shopping for the best loan. These items include interest per day from the day you close on a loan until the end of the month, and the escrow account if applicable (taxes and Insurance).  The county dictates how many months taxes need to be required to be put in that account at time of closing. As the buyer you do receive a tax credit from the seller which should offset this amount for the months that the seller owned the home in the current year.

If you have any questions or comments please leave a comment here or call me directly at 630-742-3198.

Chris Puleo, MAOM
Sr. Loan Consultant
630.587.7300 office
630.742.3198 Cell
630.622.0464 EFax
630.924.1100 Processing or Closing Questions
cpuleo@1stmortgage.com