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How Much Are Mortgage Closing Costs?
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How Much Are Mortgage Closing Costs?

Michael Jensen, Mortgage and Finance Guru
, Mortgage and Finance Guru

Closing costs are the fees that you are required to pay to numerous third parties when your mortgage funds.  Closing costs are typically thousands of dollars and are important to keep in mind when you get a mortgage. In many cases borrowers have saved money for their down payment but they do not have enough funds to pay for closing costs which may prevent them from buying a home. Understanding how much closing costs are before you start the mortgage process helps you prepare financially and avoid unfortunate surprises.

There are over 35 closing cost items that you may be required to pay and they can be separated into two categories.  Non-recurring closing costs are one-time, upfront fees that you to pay to process your mortgage including lender, appraisal, title company, settlement agent or attorney costs.  These costs also include numerous smaller fees including a credit report fee, flood certification and monitoring fees, government recording charge, notary fee, tax monitoring fee, HOA certification fee and optional items such as home or termite inspection fees.  A full list of potential non-recurring items is outlined in the table below.  Non-recurring closing costs are set by the specific service provider and you may be able to shop around to reduce your cost for certain services.  Please note that the lender selects the appraiser so you usually cannot negotiate this fee. 

Recurring closing costs are costs that you continue to pay after your loan closes including interest expense, homeowners insurance, pro-rated property taxes as well as homeowners association (HOA) dues and mortgage insurance fees, if applicable.  You continue to pay these costs as long as you have a mortgage and own your home.  You are required to pay a portion of these ongoing expenses when your loan closes and the specific cost amount is calculated based on at what day of month the mortgage closes.  For example, you are required to pay mortgage interest from your closing date until the end of the month in which your loan closes.  So if your loan closes earlier in the month, this cost item is higher.  You can to shop around for selected recurring cost items including your mortgage and homeowners insurance but the cost for other expenses such as property tax, mortgage insurance and HOA dues are set by third parties and are non-negotiable.

What Are Mortgage Prepaids?

In addition to recurring and non-recurring closing costs, you may be required to pay prepaids if you are required to use an impound account after your mortgage closes.  An impound account is a trust or escrow account managed by your lender that is used to pay costs such as homeowners insurance, property tax and mortgage insurance.  Instead of you paying these costs directly, the lender pays them on your behalf using the funds in the impound account.  You are typically required to have an impound account if your loan-to-value (LTV) ratio at closing exceeds 90%.

The lender usually requires you to pay prepaids in advance to make sure there are sufficient funds in the account to pay these costs when due over the first year of your mortgage.  For example you may be required to prepay a year or more of your property tax, homeowners insurance as well as several months of mortgage insurance fees and HOA dues, if applicable, into the impound account at closing. 

How Much Are Closing Costs?

Closing costs vary depending on the lender, loan program, mortgage amount, property type and property value, with larger loans and more expensive properties having higher costs.  Property location is also a factor as counties with higher property tax rates increase your recurring costs.  Additionally, closing costs for condos and co-ops may be higher because mortgages for these types of properties require additional documentation.    

Paying an upfront mortgage insurance premium or funding fee, such as for FHA and VA loans, can significantly increase your closing costs. Less common mortgage programs may also require higher fees. Your costs are also greater if you choose to pay discount points to obtain a lower interest rate. Lender fees are usually the largest component of non-recurring costs although you may be able to obtain a low or no closing cost loan, usually by paying a higher mortgage rate. In sum, there are multiple inputs based on your specific mortgage, property and lender that affect the amount of closing costs you pay.

Although there is no fixed dollar amount, non-recurring closing costs should be in the range of 0.5% to 2.0% of your property value. So if you are buying or refinancing a $100,000 property, closing costs should be approximately $500 - $2,000.  If your closing costs exceed 2.0% of your property value, that should raise a red flag and you should carefully review the costs items.  Please note that this figure is for non-recurring closing costs and does not include recurring expenses.  Recurring costs can significantly increase your total closing costs and vary depending on when your mortgage closes and other factors.

The table below shows closing costs and mortgage rates for lenders in your area.  We recommend that you contact multiple lenders to request loan terms including closing fees and interest rates.  Shopping for your mortgage and comparing proposals is the best way to save money on closing costs.

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Current Mortgage Rates in Ashburn, Virginia as of January 18, 2021
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Data provided by Brown Bag Marketing, Inc. Payments do not include amounts for taxes and insurance premiums. Read through our lender table disclaimer for more on rates and product details.
Can You Add Closing Costs to Your Mortgage?

A common question borrowers ask is can I add closing costs to my loan amount? Or put differently, can I finance my closing costs? From a technical standpoint, for a home purchase mortgage , except for upfront mortgage insurance fees for an FHA, VA or USDA loan, you are usually required to pay for closing costs out of pocket and cannot include most closing fees in your loan amount.  Practically speaking, however, there are several ways for you to finance closing costs.

First, lenders charge different mortgage rates depending on the amount of closing costs they charge. Mortgages with higher interest rates usually have lower closing costs and loans with lower rates have higher closing costs.  For example, a loan with a 4.500% rate may have $2,000 in closing fees while a loan with a 4.250% rate may have $2,5000 in costs.  You may be able to pay a higher mortgage rate and receive a rebate from the lender to pay for part or all of your closing fees. Paying a higher mortgage rate increases your monthly payment and may end up costing you more in interest expense in the long run but the lender rebate can help you pay for closing costs.

The second way to effectively finance your closing costs is to have the property seller pay for closing costs. In short, you can negotiate with the seller to refund a portion of the purchase price back to you at closing to pay for closing costs. For example, you may offer a property seller $150,000 and request that $3,000 of the purchase price is used to pay your closing costs. This basically enables you to add closing costs to the mortgage amount which can significantly lower your out of pocket expenses.

Please note that selected government-backed mortgage programs such as the FHA, VA and USDA home loan programs allow you to include the cost of certain upfront mortgage insurance and funding fees in the loan amount.  You can also add the cost of discount points to your mortgage in most cases.  Additionally, many local governments offer closing cost grants to help individuals with moderate-to-low incomes.

If you are refinancing your mortgage, you typically can include closing costs in your new loan as long as you qualify for the loan and you have enough equity in your home to support the higher loan-to-value (LTV) ratio.  This is why many lenders offer no cost refinances when the borrower either pays a higher mortgage rate or the costs are added to your loan amount.

Tips for Avoiding Excessive Closing Costs

One tip you can use to quickly identify excessive closing costs is to compare the Annual Percentage Rate (APR) presented in the Loan Estimate to the mortgage rate. A lender must provide borrowers a Loan Estimate that outlines the key terms of the mortgage including interest rate, APR, closing costs and mortgage features within three business days of the borrower submitting a loan application.  Most lenders will provide you a Loan Estimate if you request a mortgage quote even if you do not submit a loan application.

You can find the APR on the top of page three of the Loan Estimate. In short, the APR represents what your interest rate would be if it included all upfront lender and closing costs so it is a way to use one figure to compare both the interest rate and closing costs for a mortgage. If the APR is close to your mortgage rate -- for example if the mortgage rate is 4.500% and the APR is 4.575% -- then you know that the closing costs are relatively small. If the APR is much higher than your mortgage rate -- for example if the rate is 4.500% and the APR is 5.500% -- then you know that the closing costs are relatively high and you should negotiate lower fees or select a different lender. Additionally, if you have proposals from two lenders that are offering the same mortgage rate but one APR is lower than the other, then you know the lender with the lower APR is charging lower closing costs and superior mortgage terms.

Mortgage Closing Cost Items

The table below outlines typical mortgage closing cost items and attempts to capture most costs across the mortgage industry.  Please note that costs vary by geography, lender and other factors.  For example, lenders in different states may use different terminology for similar fees.  Additionally, in some states a lawyer administers the mortgage closing process instead of an escrow company so it is unlikely that you would be required to pay for both. Other closing costs such as mortgage insurance are not applicable to all borrowers and some fees such as discount points are optional for borrowers.  So you are required to pay some but not all of the costs outlined below, depending on your location, lender, loan program and the fees you elect to pay.

The top part of the table outlines non-recurring closing costs including various lender fees, costs for third party service providers including the appraiser, title company, settlement agent and closing attorney as well as numerous smaller items such as certification and recording fees.  The bottom part of the table summarizes recurring closing costs including interest expense, property tax, homeowners insurance, HOA fees, mortgage insurance and initial escrow payments.

The table describes each item and provides their approximate cost.  We encourage you to review this comprehensive list to understand the closing costs you may be required to pay, if they are recurring or non-recurring and how much you should expect to spend on each item and in total. The more you know about closing costs, the more likely you are to save money when you get a mortgage.

Closing Costs

Non-Recurring Closing Costs

Item
Description
Approximate Cost
Lender Fees
  • Different lenders often use different terminology for the various fees and expenses they charge to process your mortgage which can be confusing to borrowers
  • Some lenders may charge no fee, a flat fee or break-out the fees into separate cost items as outlined below
  • We offer a detailed discussion of lender fees and where to find them (Lender Fees Worksheet)
  • From $0 to 1.5% - 2.0% of mortgage amount
Some lenders may charge no fee or a flat fee
Origination Fee
(or Points)
  • Lender cost for processing the mortgage
  • One origination point equals 1.0% of the mortgage amount
  • 1 point = 1.0% of mortgage amount
Some lenders may charge no fee or a flat fee
Administration Fee
  • Cost for processing your mortgage
  • $500 - $1000
Application Fee
  • Lender cost forLender cost for reviewing borrower mortgage application (cannot be charged when the borrower submits the application) processing the mortgage
  • ~$450
Commitment Fee
  • Lender costs for locking in rate (typically not charged)
  • .25% - .50% of mortgage amount
Funding Fee
  • Lender cost for funding mortgage
  • Some government-backed mortgage programs such as the Veterans Administration (VA) program charge a separate funding fee in addition to any funding fee charged by the lender
  • $695 - $1,295
MERS Fee
  • A lender cost to register the mortgage in the Mortgage Electronic Registration System (MERS)
  • $13 - $25
Processing Fee
  • Another term for lender cost for processing mortgage
  • ~$450
Rate Lock Extension Fee
  • A fee charged to extend the period of time for which your interest rate is locked (typically not charged)
  • .25% - .50% of mortgage amount
Underwriting Fee
  • Lender cost for reviewing borrower documents and determining mortgage qualification
  • $695 - $995
Wire Transfer Fee
  • Lender cost for wiring funds to settlement agent
  • $25 - $100
Discount Points (optional)
  • A one-time, up-front fee equal to 1.0% of the mortgage amount charged by the lender or mortgage broker to obtain a lower interest rate than the borrower would otherwise receive
  • Optional cost to the borrower
  • We provide a thorough discussion of the trade-off between discount points and interest rate
  • 1 point = 1.0% of mortgage amount
Mortgage Broker's Fee (if applicable)
  • Fee paid to mortgage broker, if you are working with a mortgage broker
  • The fee is typically expressed in points with one point equaling 1% of the mortgage amount
  • 1 point = 1.0% of mortgage amount
Non-Lender Costs
Appraisal Fee
  • Fee to obtain appraisal report
  • $400 - $750
Title Services Fees
  • Fee charged by Title Insurance Company or attorney to provide title search / report and lender's title insurance policy or insurance binder
  • May also include courier, documentation preparation and notary fees charged by Title Company
  • Some title companies may charge a flat fee or charge separately for these services
  • ~$500 to ~$800
Settlement Agent / Escrow Company Fee
  • Fee charged by settlement agent to manage mortgage closing
  • Escrow companies are typically used in the western U.S.
  • $800 - $2000
Attorney Fee
  • Fee charged by real estate attorney to manage mortgage closing
  • Real estate attorneys are typically used in the eastern U.S.
  • $800 - $2000
Credit Report Fee
  • Fee charged to obtain a copy of your credit report
  • ~$25
Electronic Document Delivery Fee
  • Fee charged by settlement agent to process and printing electronic documents
  • ~$50
Flood Certification Fee
  • Fee to make sure that the property is not located in a flood plain
  • $15 - $20
Flood Monitoring Fee
  • Fee paid to third party that monitors flood zone maps after the mortgage closes to ensure that the property does not lie in a flood zone due to future government flood zone remapping
  • ~$40
Government Recording Charge
  • State and local fees to record your mortgage and title documents
  • ~$150
Notary Fee
  • Fee paid for notarizing documents
  • $125 - $300
Survey Fee
  • Fee to conduct a property survey to locate the property boundaries and make sure the property complies with local zoning regulations
  • ~$150 - $300
Tax Service Fee
  • Fee to set-up an account with tax service company to make sure you pay your property taxes
  • $60 - $100
Tax Monitoring Fee
  • Fee paid to service that monitors the borrower's property tax payments after the mortgage closes, on behalf of the lender
  • ~$75
Home Inspection Fee (optional)
  • Fee charged for home inspection report that identifies potential issues with property
  • $400 - $500
Termite Inspection Fee (optional)
  • Fee charged for termite report that identifies potential termite issues with property
  • ~$50
Homeowners Association (HOA) Certification Fee (if applicable)
  • Fee charged by the HOA to provide information on the property
  • $50 - $300
Transfer Tax
  • Tax or fee charged by some local city government to transfer property ownership from seller to buyer
  • TYPICALLY PAID FOR BY SELLER
  • ~1% or more of the property purchase price

Recurring Closing Costs

Item
Description
Approximate Cost
Interest
  • Daily interest charge on your mortgage from the day of settlement (mortgage closing) until the end of the month in which your mortgage closes
  • Depends on interest rate and mortgage amount
Property Tax
  • Pro-rated amount of property tax due based on the time of year your mortgage closes and when your property tax is due
  • Property taxes vary by county and can range from 0.5% to 3.0% of the value of the property
Homeowner's Insurance (Hazard Insurance)
  • Charge to buy homeowners insurance, which is mandatory when you purchase a property
  • ~0.1% - 0.2% of the property purchase price
Homeowners Association (HOA) Fee (if applicable)
  • Pro-rated amount of HOA fee due if the property you are buying requires an HOA fee
  • Determined by HOA; typically several hundred dollars per month
Private Mortgage Insurance (PMI) (if applicable)
  • Lenders typically require borrowers to purchase Private Mortgage Insurance (PMI) when the loan-to-value ratio for a mortgage exceeds 80% (so you put down less than 20% of the purchase price of the property you are buying)
  • Annual fee, paid monthly, that varies depending on many factors including LTV ratio, credit score, mortgage term, mortgage amount and mortgage type. Can range from .20% to 1.65% of the mortgage amount
Mortgage Insurance Premium (MIP) (if applicable)
  • If you obtain an Federal Housing Administration (FHA) loan you are required to pay an up-front and ongoing annual Mortgage Insurance Premium (MIP)
  • Depends on mortgage size, term and loan-to-value ratio
Initial Escrow Payment
  • The lender may require the borrower to deposit extra money in an escrow account for items such as homeowners insurance, property tax or mortgage insurance as a cushion
  • One-to-four months of property taxes
  • Up to two months of homeowners insurance and mortgage insurance (if applicable)

Use our personalized mortgage quote form to review no obligation quotes from lending lenders. Our quote form is free, easy-to-use and requires minimal personal information. Comparing multiple mortgage quotes enables you to find the best loan terms.

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Sources

“Learn about loan costs.”  CFPB.  Consumer Financial Protection Bureau, 2017.  Web.

About the author
Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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