Mortgage Closing Costs: Understanding Fees and Expenses

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By Barry Allen

Mortgage closing costs are a combination of bank/mortgage-related expenses and title-related expenses that you have to pay when closing on a home purchase.

What Are Mortgage Closing Costs?

Mortgage closing costs refer to the fees and expenses that borrowers have to pay when finalizing the purchase or refinancing of a home. These costs are in addition to the down payment and include various fees such as appraisal fees, title insurance, loan origination fees, and more.

Understanding mortgage closing costs is crucial for homebuyers as it gives them a clear idea of the financial implications of buying a property. By knowing the specific costs involved, borrowers can plan their budget accordingly and avoid any unexpected surprises during the closing process.

It’s important to note that closing costs can vary depending on factors such as the location of the property, the type of mortgage, and the lender. Some costs can be negotiated or reduced, so it’s advisable for borrowers to shop around and compare offers from different lenders before making a decision.

Common Mortgage Closing Costs

  • Appraisal fees: These fees are charged to determine the value of the property being financed. The cost can vary depending on the size and location of the property.
  • Title insurance: This cost protects the lender and buyer against any issues or disputes with the property title.
  • Loan origination fees: Lenders charge these fees for processing the loan application and approving the mortgage.
  • Attorney fees: Some states require an attorney to be present during the closing process, leading to additional legal fees.
  • Inspection fees: These fees cover the cost of professional inspections to ensure the property is in good condition.
  • Escrow fees: These fees are charged by the third-party escrow company for overseeing the closing process and handling the transfer of funds.
  • Credit report fees: Lenders charge a fee to pull the borrower’s credit report and assess their creditworthiness.

How Much Will You Pay?

Mortgage closing costs refer to the fees that are associated with the finalization of a home purchase. The amount you will pay for closing costs depends on various factors. Firstly, it is determined by the location of the property, as different states and regions have different regulations and fees. Additionally, the price of the property itself can also impact the closing costs. Typically, buyers can expect to pay an average of 2-5% of the total loan amount in closing costs. These costs can include fees for the appraisal, title search, attorney fees, and insurance premiums.

On the other hand, sellers also have costs to consider when closing a mortgage. These costs can include fees for the real estate agent, attorney fees, mortgage payoff, and transfer taxes. The average closing costs for sellers can range from 1-3% of the total sale price.

Bank/mortgage-related Expenses

Mortgage Closing Costs
Bank/Mortgage-Related Expenses
Loan origination fees Mortgage lenders charge a fee for initiating and underwriting a mortgage, which is known as a loan origination fee. This fee varies between lenders and typically ranges from 0.5% to 1% of the loan amount.
Discount points Discount points are fees paid to the lender at closing in exchange for a lower interest rate. Each point is equal to 1% of the loan amount and can help reduce the monthly mortgage payments.
Mortgage insurance Mortgage insurance is often required for borrowers who make a down payment of less than 20% of the home’s purchase price. This insurance protects the lender in case the borrower defaults on the loan.
Prepaid interest Prepaid interest is the amount of interest that is paid upfront at closing to cover the interest that will accrue on the mortgage loan from the closing date to the end of that month. It is calculated based on the loan amount and the interest rate.
Property taxes Property taxes are assessed by local governments and are typically paid on a yearly basis. At closing, a portion of the annual property tax is collected to be held in escrow by the lender to ensure that the taxes are paid when due.
Homeowners Insurance Homeowners insurance is a type of insurance that protects the homeowner from financial loss due to damage or destruction of their property. Lenders typically require borrowers to have homeowners insurance and may collect a portion of the annual premium at closing to be held in escrow.

Title-related Expenses

When it comes to mortgage closing costs, it’s important to understand the different expenses involved. Title-related expenses are one category, which includes title insurance, title search fees, recording fees, escrow fees, and survey fees. Title insurance provides protection for both the lender and the buyer in case there are any issues with the property title. Title search fees are charged for researching the history of the property’s ownership to ensure there are no liens or other claims against it. Recording fees cover the cost of filing the necessary documents with the local government. Escrow fees are paid to a third party who holds and distributes the funds during the closing process. Survey fees may be required to determine the property’s boundaries and any encroachments. These title-related expenses are an important part of the closing costs and should be taken into account when budgeting for a mortgage.

Mortgage Closing Costs

Tips To Lower Your Closing Costs

Mortgage Closing Costs
Tips to Lower Your Closing Costs  
Negotiating with lenders  
When it comes to lowering your closing costs, a good first step is to negotiate with lenders. You can ask for a breakdown of the fees and see if there are any that can be reduced or waived. Lenders may be willing to negotiate on certain fees or offer discounts, especially if you have a strong credit history or are a loyal customer. It’s important to shop around and compare loan offers from multiple lenders to find the best possible terms.  
Shopping around for service providers  
Another way to potentially lower your closing costs is to shop around for service providers. You can compare quotes from different lenders, title companies, and other service providers to find the most competitive rates and fees. Keep in mind that while it’s important to find affordable services, it’s equally important to ensure that you’re working with reputable and trustworthy professionals.  
Exploring government assistance programs  
If you’re struggling to cover your closing costs, exploring government assistance programs may be a viable option. There are various programs available that can help eligible homebuyers with down payment and closing cost assistance. Research and reach out to local housing agencies, nonprofits, or lenders to inquire about any available programs in your area.  
Understanding the Closing Disclosure  
Lastly, it’s crucial to thoroughly understand the Closing Disclosure. This document provides important details about your loan, including the final costs and fees associated with the mortgage. Take the time to carefully review the document and ask any questions you may have. If there are any discrepancies or items that you’re unsure about, don’t hesitate to reach out to your lender for clarification.  

In conclusion, by negotiating with lenders, shopping around for service providers, exploring government assistance programs, and understanding the Closing Disclosure, you can potentially lower your mortgage closing costs and make the home buying process more affordable. Remember to do your research, ask questions, and compare your options to make informed decisions.

Closing Costs Calculator

How to use a closing costs calculator
To use a closing costs calculator, simply input the necessary information, such as the loan amount, interest rate, and location, into the calculator. The calculator will then provide you with an estimate of your closing costs based on these inputs. This can be a useful tool when budgeting for a home purchase, as it allows you to see how much you can expect to pay in closing costs.

Recommended closing costs calculator tools
There are several closing costs calculator tools available online, such as the SmartAsset calculator and the Bank of America calculator. These calculators use local tax and fee data to provide accurate estimates of closing costs specific to your location. It’s recommended to use multiple calculators to compare results and ensure accuracy.

Importance of accurate calculations
Accurate calculations are crucial when it comes to estimating closing costs. By having a clear understanding of your closing costs, you can better prepare financially for the home buying process. It’s important to note that closing costs can vary depending on factors like location and loan type, so using a calculator specific to your situation can help provide the most accurate estimate.

Frequently Asked Questions For Mortgage Closing Costs

What Is The Formula For Calculating Closing Costs?

Closing costs cannot be calculated using a single formula as they vary based on factors such as the location, loan amount, and type of mortgage. Closing costs typically include fees for appraisal, title insurance, loan origination, and other services. It is recommended to use online calculators or consult with a mortgage professional for an accurate estimate.

Which Of The Following Closing Cost Fees Is Commonly Charged On A Loan?

Title insurance.

What Are The Average Closing Costs For A Buyer In NY?

The average closing costs for a buyer in NY can vary, but they typically range from 2% to 5% of the home’s purchase price. These costs include fees for appraisal, inspection, title insurance, attorney fees, and more. The buyer is responsible for paying these closing costs.

Who Pays Closing Costs In NY?

In New York, the buyer typically pays for the closing costs when purchasing a house. These costs include bank/mortgage-related fees and title-related expenses. Some examples of closing costs are appraisal fees, tax service provider fees, and title insurance. The seller may also contribute to the closing costs, depending on negotiations.


Closing costs are essential expenses that homebuyers need to be aware of when purchasing a property. These costs encompass various fees, including those related to the mortgage and title, as well as insurance expenses. It is crucial to understand the different closing costs and their impact on your overall budget.

By using resources like calculators and seeking the guidance of professionals, you can better estimate and prepare for these expenses. Remember to negotiate and explore potential savings to minimize your financial burden during the closing process.


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