In the past year, Americans spent about $110 billion on purchasing homes. Americans tend to pay astronomical amounts in closing cost. There are many fees that you are required to pay in the closing of your home loan, and then there are fees thatt are just plain made-up. These fees vary from state-to-state and are ironed out in the Good Faith Estimate, which your mortgage lender should provide for you. It is important to remember that it is an estimate, not the actual cost. You should compare at least three different good faith estimates to insure you are not getting ripped off. Remember…protecting yourself is up to you.
Closing costs consist of four main categories of fees that you should recognize:
- Origination Fees
- Title and Closing
- Government Fees
- Prepaid Expenses
Here is a breakdown of the closing costs, what each fee means, and how much the average closing cost is in the United States. This information was provided to me by John, a Houston Mortgage Broker at Lonestar Financing. The information provided is based on a $200,000 home lone amount in the United States. This is just the average, and your closing cost may be higher or lower depending on a lot of factors; including your loan amount, bad credit, or even if you are a first time buyer.
1. Origination Fees
- Points – points you pay to buy down your interest rate. On average, for every point you buy in lowers interest rate by 0.25. (Average $715)
- Application fee – lender’s cost to process your loan application. (Average $420)
- Commitment fee – this guarantees a loan at a later date even though the credit is not being used at the time. (Average $560)
- Document preparation – document prepared by the lender for getting you a loan. (Average $180)
- Funding fee – money used to transfer your loan money. This is not used in Houston, Texas example. (Average $30)
- Origination or lender fees – money charged by the lender for preparing your loan. (Average $1110)
- Processing – money charged by the lender for processing your loan. (Average $365)
- Tax service – money collected by your lender and placed in your escrow account and then it is put toward your property taxes. (Average $65)
- Administrative Fee – usually covers document preparation. (Average $400)
- Underwriting – fee charged for taking a risk with your home loan. (Average $245)
- Wire transfer – money used to transfer your loan money. This is the same as funding fee in this example. (Average $30)
2. Title and Closing
- Appraisal – used to determine the market value of the home to be purchased. It is also used by the bank to determine how much you can be approved for. (Average $325)
- Attorney, closing or settlement fee – money used for preparing and evaluating papers for your home loan closing. (Average $345)
- Credit report – money used by lenders to gather information about your credit history. (Average $12)
- Flood Certification – insuring the property does not lie within a flood zone. (Average $12)
- Pest, other inspection – money used for pest inspections and any other inspections necessary on the property. (Average $50)
- Postage/courier – money used by the title company to transfer your papers. (Average $30)
- Survey – used to determine the official boundaries of the property. (Average $175)
- Title insurance – protects the title company as well as the buyer from anything missed in the title search. (Average $750)
- Title work – money used to research the property at the courthouse. (Average $225)
3. Government Fees
- Recording fee – money used to pay the county clerk to record the purchase of the property. (Average $97)
- City/county/state tax stamps/intangible tax – tax charged to change ownership of the property. (Average $1365)
- Prepaid – items prepaid before closing. For example insurance premiums. (Average $1460)
- Escrow – money set up in an account to be used to pay real estate taxes. (Average $700)
The average closing cost in the United States is $2,736. Texas ranked number 2 on the list of most expensive closing costs following New York.
The table below depicts a state-by-state average of closing costs for the United States:
The total cost that you can expect to bring to the table at your closing is about 3% – 6% of the loan amount. For the most part, buyers typically pay the closing cost. Buyers can request that the sellers pay closing costs, but it may affect the purchase price.
Be sure to do your homework and shop around. Miscellaneous fees could cost you hundreds, even thousands. You should never be afraid to ask questions. Not only is this quit possibly the biggest purchase of your life, it is also an investment. So invest in a mortgage broker you can trust.