Closing Costs

Just when you think you're gonna make it with enough money for a down payment on a new house, you're told about closing costs. These are fees charged in addition to the sale price of the house, condo, or other real estate you plan to buy. The costs are payable at the meeting, where the title of the property transfers from the seller to the buyer, called the closing.

Never fear if you think you won’t have enough cash to pay for all these costs—most of them can be rolled into the mortgage loan from your lender, although your monthly payments will be higher.

Here is just a small sampling of the smorgasbord of closing costs:

- Appraisal fee so your lender can confirm the market value of the home.

- Escrow Deposit for Property Taxes; you might have to put down two months of property taxes.

- Flood Determination Coverage; this is paid to an expert to determine if the property is located in a flood zone. If the property is in a flood zone, you'll need to buy flood insurance.

- Homeowners’ Insurance; your first year’s insurance cost is often paid at closing.

- Loan Discount Points; "points” is another name for prepaid interest. One point is one percent of your loan amount. This is a lump sum payment that lowers your monthly payment for the life of the loan.

- Title Company Title Search or Exam Fee; this fee is paid to the title company for researching the deed to your new home, ensuring that no one else has a claim to the property.

You can expect to pay about 2 to 5 percent of the purchase price of your home in closing fees. So, if your home costs $200,000, you might expect to pay between $4,000 and $10,000 in closing costs.

But the amount will not come as a complete surprise to you, since three or more business days before the closing the lender will give you a Closing Disclosure Statement that lists all the closing fees. You should feel free to ask your lender to explain what each line item on your closing costs is and why it is needed. You can negotiate to have such things as high courier and copying costs reduced or eliminated. As mentioned, if you don’t want to pay all these fees up front, you can get a “no closing cost” mortgage, where the costs are added into your total loan. But keep in mind...you'll be paying interest on this extra amount over the life of the mortgage, so an even better idea is to negotiate with the sellers to see if they'll pay for some of the closing costs. However, this will probably not fly in a seller’s market.