Understanding The Four Most Common Categories of Closing Costs
Mortage expert based in St. Louis, MO
"Closing costs" is a common term used to cover expenses and fees in mortgage transactions, but not all buyers have a strong understanding of what exactly goes into closing costs. There seems to be a misconception that you need tens of thousands of dollars on hand to purchase a home, which is not the case. Closings costs are typically broken down into four separate categories and run around 2%-5% of the total purchase price. Understanding what goes into closing costs and planning to budget for them will make the last stretch of the home buying process undoubtedly smoother.
Here are some of the fees a buyer’s closing costs can include:
Origination Fees: These are the fees your lender will charge for them to originate the loan. At First Integrity, origination fees include a commitment fee, an underwriting fee, and a credit report fee.
Third-Party Fees: These are fees that get paid to third parties who assist with the transaction. Once you are under contract, your lender will order an appraisal and inspection of the property. It is important to note these are two separate reports. The inspector ensures the property is structurally sound, while the appraiser makes sure the home is worth the agreed-upon purchase price.
Prepaid expenses (Escrow Account): An escrow account is an account you pay into every month along with your mortgage, and it covers your annual insurance premium, annual property taxes, and your mortgage insurance if it applies. It is standard to pay a full year of your homeowner's insurance upon closing, as well as at least 3-4 months of reserves of both your property insurance and your taxes.
Down Payment: Lastly, most buyers are required to put some money down at closing. Although down payment requirements vary depending on the loan, most programs require between 3 and 5% down, but some programs allow for ZERO percent down! Be sure to consult with your mortgage professional to see which program is best for you.
Keep in mind; this is a brief overview of the kinds of things that make up closing costs. Make sure to contact a mortgage professional for the specifics of your home purchase.
At First Integrity Mortgage Services, we specialize in finding the best home loan program for your unique situation. Should you have any further questions regarding closing costs or anything mortgage-related, give me a call at 636-284-4565 or email at dsalsman@firstintegrity.com. I am always happy to help!