Your down payment isn’t the only cash required to close a home loan.
Closing costs are processing fees that include any applicable lender fees, appraisal fees, credit reporting fees and title and escrow fees.
Escrow funds are also part of your closing costs.
Escrow holds reserved money for property taxes, homeowners insurance and mortgage insurance if applicable.
Closing cost fees vary depending on your loan type, loan amount and location but are typically 2 to 4% of the loan amount.
Borrowers have the option to choose a slightly higher rate which will provide them with lender credits that they can use to directly lower their cash to close (closing costs).
Alternatively, they can choose a lower rate with additional discount points, which buys the interest rate down but will require more cash at closing.
Both buyers and sellers pay closing costs. However, the buyer usually pays most of them. You can negotiate with a seller to help cover closing costs, which are called seller concessions.
There are limits on the amount that sellers can offer toward closing costs. Sellers can only contribute up to a certain percentage of your mortgage value, which varies by loan type, occupancy and down payment.
Prior to closing your lender will provide you a Closing Disclosure (CD), which will list every closing cost individually and how much you owe in total.
Take your time reviewing this disclosure and make sure to ask your lender any questions you may have or for more information or clarity on any the fees.