Closing Costs

Closing costs is a blanket term often used in conjunction with the purchasing of a mortgage or a new home. While it is mentioned often, many people have little if any understanding what closing costs are or why they have to pay them. Certain localities may have closing costs that are unique or customary, but closing costs are mostly always made up of the same elements.

One part of closing costs is attorney's and escrow fees, both yours and that of your lenders. Closing costs also include property taxes to cover the tax period before the closing date, as well as interest that covers the period between closing and the first monthly payment. A loan origination fee is often charged by lenders to cover their administrative costs. Recording and survey fees to properly document the transaction are included in closing costs.

The first premium of mortgage insurance, if applicable, is included in the closing costs, along with title insurance for both you and your lender. Loan discount points are included in closing costs, if your loan has points. A first payment to an escrow account for future taxes and insurance is also included in closing costs. A paid receipt for homeowneręs insurance, as well as sometimes flood and fire insurance, is included in the costs, as are other documentation preparation fees.

All these costs are important and necessary parts of buying a home. However, they can add up quickly for many lower and middle income buyers. These costs are often referred to as hidden fees, and while small on their own, can become a major factor in buying a home. Some mortgage companies allow financing of some closing costs on their own, and the FHA allows financing for much of the total closing costs amount for low and middle income buyers.