Mortgage Closing Costs: How Much Cash Do You Need Out of Pocket?

For most people, buying property is a rare event. Taking part in one or two real estate transactions in a lifetime does not build deep knowledge of the process. There are many documents to sign, confusing new jargon, and plenty of fast-talking people from agents to brokers. Beyond the mortgage amount, nearly everything else falls under “closing costs.” Keeping an eye on those costs shows you where your money goes and can even save you a few hundred dollars.

Closing costs: what are they?

The phrase “closing costs” is shorthand for the combined total of several dozen potential expenses tied to buying and financing a home. They can be classified as “recurring” and “one-time,” and they are additional to your down payment.

Recurring expenses

Recurring expenses are paid not just at closing but monthly after the purchase. They include property taxes, homeowner’s insurance, HOA fees and - if your down payment is under 20% of the purchase price - private mortgage insurance (PMI). Part of these costs may be paid up front at purchase (for example, an insurance year and a portion of property taxes).

One-time expenses

One-time expenses are also settled at closing. They can include:

• a fraction of a percent of the mortgage paid to receive lower monthly payments (points)
• the loan origination fee - the lender’s profit
• a set of loan fees that may include the appraisal fee, the credit-report fee, tax service fees, wire-transfer charges, your attorney’s fee, recording fees with government offices, and so on
• any home inspections, such as termite, radon and others
• the flood-zone determination, to check whether the property sits in a flood-prone area
• title insurance on the home

Many other incidental costs can appear: courier and delivery, recording fees, transfer taxes and an additional home warranty.

How much do they cost?

Fees vary widely depending on the lender, the geographic location and the home price. In the Raleigh area, plan on a range of $4,000–7,000. Before buying, ask your bank or mortgage broker for a “Loan Estimate,” which lists the approximate closing costs. You can also request a breakdown and challenge any inflated or unusual charges.