Whether buying a home or refinancing an existing one, forgetting about mortgage closing costs can leave borrowers short of the funds they need. At MortgageDepot, our lending professionals make it a point to explain the expenses associated with mortgage financing. MortgageDepot is a mortgage broker company working on behalf of borrowers to find lenders offering the best financing terms and convenient options for paying closing costs.
Typical closing costs
A good real estate agent usually reviews with buyers the expenses, referred to as “closing costs,” that must be paid over and above the selling price of a home. Typical closing costs include the following:
- Attorney legal fees
- Title search and title insurance premium
- Real estate taxes
- Homeowners insurance
- State and local transfer taxes and recording fees
Individuals financing the purchase of a home or refinancing a mortgage on an existing property have additional expenses charged by the lender or by third-party providers, such as the legal fees of the lawyer working on behalf of the lender. Other mortgage-related closing costs include the following:
- Underwriting fee
- Processing fee
- Origination fee
- Mortgage title insurance premium and title company expenses
- State and local recording fees for mortgage documents
- Appraisal fee
- Credit search
- Notary fees
Most lenders also require borrowers to prepay a portion of the real estate taxes and homeowners insurance to establish an escrow account from which the lender can pay future bills. These prepaid items add to the closing costs.
Even though real estate agents do their best to anticipate the money a buyer needs in order to complete the purchase of a home, it is difficult for an agent to offer an accurate estimate of mortgage closing costs without knowing what expenses a particular lender may charge. Origination fees, administration expenses and other costs passed on to borrowers may differ from one lender to another. This is why our loan officers tailor their review of closing costs to the expenses charged by the specific lenders to which our borrowers submit applications for financing.
Options available to borrower for paying closing costs
Closing costs related to financing the purchase of a home may pose a challenge for borrowers who struggled to save enough money to meet the down payment requirements. We work with lenders offering the following options for borrowers unable to pay closing costs:
- Lender credits
- Seller credit toward closing costs
- Incorporate closing costs into the mortgage
Lenders offering a credit toward closing costs provide a viable alternative for borrowers lacking the funds to make an out-of-pocket payment. The higher interest rate charged by lenders offering this option may not deter borrowers who plan to refinance the loan or sell the property and pay off the debt within a relatively short time.
Buyers need to be careful when purchasing a home with a seller credit or seller concession toward closing costs. A seller credit toward closing costs may turn out to be nothing more than an increase in the selling price of the property in order to allow the buyer to borrower more to cover closing costs.
Incorporating closing costs into a mortgage may offer a solution for a borrower short of funds, but it must be done with care. Increasing the amount of the loan affects the loan-to-value ratio and could require the payment of private mortgage insurance. It could also affect the borrower’s ability to qualify for the loan by increasing the monthly mortgage payments.