Within the purchase of a home and the obtaining of a mortgage, there’s one important area that often gets glossed over: Closing costs. These refer to various fees and payments that are paid when you finalize a home purchase, and they’re generally fairly significant.
At Altius Mortgage and our partners at Mortgage Ogden, we can help walk you through all the potential closing costs you may be in for. Here are some basics on what these costs are, how they’re calculated, and what your options are for paying them.
Closing Costs Defined
Closing costs refer to all extra expenses beyond the home’s purchase price. In general, closing costs will run between two and five percent of the total loan amount.
Costs that are usually part of the deal here include: Origination fees, property taxes, appraisal fees, insurance and escrow costs, and sometimes others. These will vary based on the area in question, and even based on the individual mortgage lender.
Closing Cost Calculation
Closing costs for mortgages are calculated using a combination of third-party expenses and lenders fees. Appraisals and inspections come with set fees, while other fees will be adjustable. When you apply for a mortgage, your lender will provide you with an estimate of closing costs within three days – this won’t necessarily be 100 percent accurate, but it will give you a good idea. You’ll then receive a final closing disclosure before the deal closes, and this will be precise.
Options for Paying Closing Costs
There are a few options you generally have at your disposal for paying closing costs:
- Up front: Usually done by cashier’s check, this is the simplest method for paying closing costs if you have the funds. This method keeps mortgage rates lower and avoids increasing the mortgage amount to cover the costs.
- Rolling into loan: Available for most types of loans, this is where your mortgage amount is increased to include closing costs. This will increase your mortgage rates and monthly payments a bit, however.
- Lender pays: In certain cases, known as low-cost or zero-cost closing loans, the lender themselves will pay the closing costs. This will not increase the loan amount, though this is the option that will generally come with the highest rates and monthly payments.
For more on closing costs, or to find out about any of our other mortgage services, speak to the pros at Altius Mortgage today.