What Are Closing Costs?

One of the last steps of purchasing a home is paying all of the closing costs. These costs are generally fees associated with the purchase of the home that are charged by the lender or a third party. The home buyer typically pays the closing costs, but motivated sellers sometimes agree to cover them in order to quickly sell their home. Here are some basic answers to frequently asked questions regarding closing costs you might find helpful when you make the decision to buy your first home.

 What All Is Included in Closing Costs?

Closing costs will obviously vary based on a number of factors including the area where the property is located and the state you live in. Featured below are just a few of the fees that may be included in the closing costs that the buyer is required to pay before purchasing a home. Keep in mind that all home buying transactions are different and your closing costs may include all of these charges, only just a few or perhaps others that are not listed.

• Credit report fee
• Loan origination fee
• Attorney's fees
• The home inspection fee
• Pest inspection fee
• The survey fee (for verifying property lines)
• An appraisal fee
• Discount points (fees you pay in exchange for a lower interest rate)
• Title insurance
• Title search fees (pays for a title background check to ensure there are no unpaid mortgages or tax liens on the home)
• An escrow deposit
• A recording fee (paid to the city or county to have them document the new land records)
• An underwriting fee (covers the cost of reviewing the application for the mortgage loan)

 Can Closing Costs Be Avoided?

There are a few ways home buyers can avoid paying closing costs. Some lenders offer no-closing cost mortgages depending on certain special circumstances. Although you won't have to pay the closing costs at the time of closing on your new home with one of these mortgages, you may end up paying more in the long run. This is because the lender will most likely charge you a higher interest rate or include the closing costs in your monthly mortgage payments. Another way you can avoid paying closing costs as a buyer is by negotiating with the seller. As previously mentioned above, some motivated sellers will agree to cover some, if not all, of the closing costs to speed up the selling process. Some types of loans, such as VA loans, actually require the seller to pay a portion of the closing costs.

When purchasing a new home, it's important to keep in mind that you need to budget in order to cover the closing costs before you even apply for the mortgage loan. While some buyers can avoid paying most of these fees, it's best to ensure that you can cover them just in case. Being prepared can better ensure that you will be able to move in to your dream home as soon as possible.