All mortgage loans have closing costs. Appraisal, credit report, state taxes, country recording fees, lender costs, title company costs, your first years home owners insurance, and even pre-rated property taxes.

These closing costs have to be paid by someone, and that someone is always you. There are various ways to pay closing costs:

• Out of pocket
• Roll into loan (higher loan amount - Also known as seller paid closing costs)
• Roll into interest rate (higher interest rate offsets out-of-pocket costs today)
• Any combination of these

How Much Are Closing Costs

Closing costs can vary dramatically depending on many variables. Loan amount, state, property taxes, insurance, and more. We hear a lot of people say closing costs are 3% or the homes price. That has never ever been true. We believe that is commonly told because on a standard conventional loan with a small down payment, 3% is the maximum amount a buyer can ask the seller to pay towards the buyers closing costs.

The ONLY accurate way to get a closing cost number is by working with your Loan Officer to discuss all the variables, then the Loan officer can tell you what they will be in your case.

Rate vs Costs

After determining basic closing costs, you also have a personal choice that affects closing costs too.

• You can select a lower interest rate than the current market rate - but doing so will INCREASE your closing costs, known as buying discount points.
• You can select lower closing costs - but doing so will INCREASE the interest rate on the loan, as the lender will offset your costs today, by collecting them over time with a higher rate.

None of these options are automatically good or bad. It just really depends on the borrower's wants, needs, and goal.

For example, a first time home buyer - just barely having enough for down payment, has limited resources to also pay closing costs. Therefore rolling the closing costs into the loan, while resulting in either a higher interest rate or larger loan amount, is still a great option.

A move up buyer, selling their existing first home, and making a large profit might decide to buy down the new loans interest rate because they have the additional money today, and the intend to live in the new home a long time. Easily recovering the additional costs up-front with lower payments over the life of the loan.

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