All You Need To Know About Closing Costs

Buying a new home is a super-exciting and super-busy time. There are many details and decisions involved in this purchase — and, of course, loads of expenses.

You’ve likely prepared for most of these expenses. Maybe you’ve been saving up for your down payment for many years and have set aside a few thousand dollars to help cover moving costs and furniture for your new home. While these are important, many people forget about budgeting for closing costs when saving up for a new home.

Closing costs include all fees and charges incurred for officially transferring a property from one owner to another. The process is complicated and requires input from many professionals who all need to get paid. Your closing costs help cover the salary of these workers.

Given all this, you may be wondering about your closing costs. What kind of closing costs can you expect on your home loan? Is there any way to lower these costs? What is a no-closing-costs mortgage?

So many questions — and we’ve got answers! Here’s all you need to know about closing costs.

How high will my closing costs be?

Some closing costs are calculated as a percentage of the home’s purchase price. This means the more expensive your home, the higher the closing costs. Typically closing cost run about $2,500 - $4,000. 

The final amount depends on local laws and taxes, the service fees of the professionals used and various factors involving your home and property.

Your closing costs should not come as a surprise to you on closing day. By law, your lender is required to provide you with a “good faith estimate,” or a detailed list of your anticipated closing costs, within three days of your mortgage application.

What kind of charges can I expect as part of my closing costs?

Here are some of the fees that may be included in your closing costs:

  • Appraisal: This covers the fee of a professional appraiser who will provide your lender with an estimate of your home’s true value.
  • Closing fee or escrow fee: This covers the cost of the Title Company, Escrow Company or attorney for facilitating the closing.
  • Credit check: Some lenders charge a fee to examine your credit history.
  • Discount points: These optional charges can help you qualify for a lower interest rate on your loan.
  • Escrow deposit: You may be asked to make your initial escrow deposit at closing. This covers the first two months’ worth of property taxes and mortgage insurance payments.
  • Homeowners’ insurance: Many lenders require you to pay the first years’ worth of homeowner’s insurance premiums at the closing.
  • Lender’s policy title insurance: This insurance assures the lender that you own the home and the lender’s mortgage is valid. It protects the lender if there is a problem with the title.
  • Origination fee: This helps compensate workers involved in marketing for the loan company and those who will help you with the borrowing process.
  • Prepaid interest: Most lenders require buyers to prepay the interest that will accrue from the day of closing until the date of the first mortgage payment.
  • Primary Mortgage Insurance (PMI): If your down payment is less than 20 percent of the home’s total value, you’ll need to pay PMI until you own 20 percent of the home by market value. The lender can collect up to a full year of PMI at closing. 
  • Title fees: This covers the cost of a title search, in which your lender hires a title company to look for possible legal claims on the property you’re purchasing.
  • Transfer taxes: This covers a tax for the transfer of the property’s title from the seller to the buyer.
  • Underwriting fee: This fee goes directly to your lender. It covers the cost of researching whether you should be approved for the loan.


Should I choose the “no-closing-costs” option?

While a no-closing-costs mortgage sounds tempting, it’s important to understand what it really means before going with this kind of loan.

First, there’s no such thing as a mortgage without closing costs. You won’t see these costs on a no-closing-costs loan, and you won’t need to pay them upfront, but they do exist.

In some instances, lenders raise the interest rates on no-closing-costs mortgages. That means you’ll be paying more over the life of the loan than you would with other mortgage types.

Skipping out on closing costs might be advantageous in the short run, but it will have financial consequences which you’ll be dealing with for years to come.

Is there any way to save on closing costs? 

There are steps you can take to bring down your closing costs:


  • Ask the seller to cover some of the costs. In a buyer’s market, and/or if your seller is particularly eager to complete the sale, you can ask them to cover some of the closing costs.
  • Compare closing cost between lenders. Credit Unions will likely have substantially lower closing cost in comparison to big banks and brokers. 

If you’re in the market for a new home, don’t forget to stop by Diamond Valley to learn all about our home loans.