Conventional Loan Closing Costs
A big part of buying or refinancing a home is the closing costs. Many individuals come together to make the loan possible including the lender, closing agent, title company, attorney, and appraiser. Each company charges fees for its services, which create your closing costs.
On average, borrowers pay 3% - 5% of the loan amount to close a loan, but this varies by individual and lender.
Below I’ve summarized the most common closing costs conventional loan borrowers pay.
Property Closing Costs
Many costs you pay are for the property itself. These services ensure the property is a good risk for the lender:
- Home appraisal – This ensures the home is worth enough to loan you the money
- Home inspection – Lenders don’t require an inspection, but I highly suggest it so you know the home’s in good and stable condition
- Flood certification – If buy a property near a known flood zone, lenders may require certification to determine if the property needs flood insurance
- Real estate taxes and insurance escrow – You may need to put money toward your future taxes and insurance depending on when you close
Loan Closing Costs
Other closing costs you pay are for the financing itself. These costs help the lender determine your eligibility and ensure that you’re a good candidate for conventional financing:
- Credit report fees – Lenders pull your credit report to see how you handle your finances and how much current debt you carry
- Lender fees – Lenders often wrap all their fees into one origination fee or other similarly named fee. This covers the administrative and underwriting work necessary for your loan.
- Title fees – Lenders need title companies to ensure the home doesn’t have any liens and the seller legally owns the property. They also make sure the home is able to be legally transferred and handles the process.
- Discount points – If you want to buy the interest rate down, you may pay a percentage of the loan amount to get it.
- Prepaid interest – If you close before the end of the month, you must cover the interest on the day remaining in the month.
Other Closing Costs
Depending on how much you borrow and the loan requirements, you may also pay:
- Homeowner’s insurance premium – Most lenders require you to pay one full year of homeowner’s insurance before or at the closing.
- Mortgage insurance – Conventional loans typically charge PMI monthly and don’t have upfront mortgage insurance fees, but if you choose to pay your mortgage insurance in one lump sum, it increases your closing costs.
Help with Closing Costs
I know looking at the closing costs can seem overwhelming. My long history in the mortgage industry makes it easy for me to help borrowers just like you make sense of the closing costs and even negotiate the fees to keep them as low as possible.
Your closing costs aren’t your down payment, which many people confuse. I’ll help you see the difference, understand how much you need, and help you determine your options to close on your conventional loan.