Closing costs are the fees and expenses incurred during the finalization of a home purchase or refinance transaction. They cover a variety of services needed to transfer ownership of the property and secure the loan. These costs are typically paid at the closing of the transaction and usually range between 2% and 5% of the home’s purchase price. Below is a breakdown of common closing costs:

1. Loan-Related Costs

• Origination Fee: Charged by the lender for processing your loan (usually 0.5%-1% of the loan amount).
• Discount Points: Optional prepaid interest to lower your mortgage interest rate.
• Credit Report Fee: Covers the cost of pulling your credit report.
• Underwriting Fee: Charged by the lender to review and approve your loan application.

2. Third-Party Fees

• Appraisal Fee: Pays for the appraisal of the property to determine its market value.
• Inspection Fees: Includes home inspections, termite inspections, or other specialized inspections required.
• Title Search Fee: Ensures there are no outstanding liens or disputes over the property.
• Title Insurance: Protects the lender (and optionally the buyer) from title-related issues.
• Survey Fee: Confirms the property boundaries and any potential encroachments (if required).

3. Escrow and Prepaid Costs

• Escrow Fee: Paid to the title or escrow company managing the closing process.
• Property Taxes: Typically 2-6 months of taxes are prepaid at closing to fund your escrow account.
• Homeowners Insurance: The first year of your policy is usually paid at closing.
• Private Mortgage Insurance (PMI): Required for Conventional loans with less than 20% down or FHA loans.
• Prepaid Interest: Covers the interest on your loan from the closing date to the end of the month.

4. Government Fees

• Recording Fees: Charged by your local government to record the property deed and mortgage documents.
• Transfer Taxes: Fees paid to the city, county, or state for transferring property ownership.

5. Miscellaneous Fees

• HOA Fees: If the property is part of a Homeowners Association, there may be upfront dues or transfer fees.
• Courier Fees: Covers the cost of sending documents back and forth for closing.
• Attorney Fees: If your state requires an attorney for real estate transactions.

If you’re unsure what costs to expect, your lender will provide a Loan Estimate early in the process, detailing all expected closing costs. At least three days before closing, you’ll receive a Closing Disclosure that outlines the final costs.