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Closing costs: a generic term tossed around by mortgage originators, real estate agents and even your neighbor. But what are these fees all about? Read on to learn the basics of closing costs and how they will affect your home purchase.

What are closing costs?
Closing costs, or settlement costs, are one-time expenses charged in connection with the origination of your loan. They cover additional costs like loan origination fees, loan discount points, appraisal fees, title search fees, title insurance premiums, survey fees, transfer taxes, recording fees and credit report charges. Closing costs will be disclosed to you on your Loan Estimate Disclosure and Closing Disclosure.

How much should I set aside?
Closing costs typically run between 3% and 5% of your home’s purchase price, which gives you a general idea of what to budget for even before receiving a Loan Estimate from your lender. Your loan type, down payment amount and the state in which the home is located will all determine how much money you need to set aside for closing.

What is a Loan Estimate?
An LE, as it is more commonly known, is an itemized list of fees and costs associated with the loan that the lender must issue to the borrower within three business days of a completed loan application. True to its name, a Loan Estimate is just that—an estimate. Some closing costs can change, but, if they do, your lender may provide you with a revised LE and explain the changes. You can use Loan Estimates to compare the closing costs for different lenders and compare the actual closing costs shown on the Closing Disclosure when you ultimately close on your mortgage loan.

How do these rules apply to new construction homes that are yet to be built? Once the city issues the start of the Certificate of Occupancy on a home that is scheduled to close more than 60 days out, any estimate changes must happen by the time the interest rate is locked and within 60 days after the contract.

Can I get assistance with closing costs?
The short answer is there are no guarantees. Many people buying resale homes ask the seller to pay the closing costs during negotiation, but if homes are selling quickly in your area or there is more than one offer on the table, your real estate agent may advise against it. If you choose to buy a new construction home, check to see if the builder is offering closing cost assistance as a sales promotion at any of their locations. If you’re active or former military, you may also find that you may qualify for a Veterans Administration (VA) loan that may cover some or all of your closing costs.


Ed Poirier  & Rubin Wites

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