Understanding the Costs of Obtaining a Mortgage

If you are ready to purchase your first home, you have probably spent quite a bit of time thinking about how much home you can afford, calculating costs like your monthly payments, your homeowners insurance, and property taxes. However, there are additional costs—called closing costs—to obtain a mortgage in Utah that might take you by surprise if you do not know about them.

What Are Closing Costs?

The term “closing costs” is a general term used to describe any costs that are charged to potential homebuyers as part of closing the loan. These fees must be settled at the time that you make the purchase, or when you close the loan, which is where the term “closing” costs come from.

Who is Charging Me These Costs?

Most of the closing costs charged to homebuyers are actually from third-party companies, and the mortgage lender is just passing those costs from these other companies on to the buyer, although some of the costs might be from the lender. The buyer is generally responsible for covering these costs, but in some cases other parties in the transaction might agree to cover some or all of these charges. For example, someone who purchases a home with a VA loan might be able to get the seller to pay some of the closing costs. In other cases a private seller might agree to pay closing costs as an added incentive to sell the home faster.

If a mortgage lender is advertising a no-closing-cost loan, be sure to ask them about the specifics. In some cases you will still pay these costs, they will just be rolled into your overall loan instead of being due up front at the closing. That can be a good solution for buyers who don’t have a lot of cash available to pay closing costs, but it means you will be paying interest on those costs for 30 years as part of your mortgage.

How Much Will it Cost?

The exact total for closing costs depends on your home price and your lender, but generally speaking they will add up to around 2 to 5 percent of your total home sale price. They cover costs associated with the loan, such as:

• Credit report fees
• Loan origination fees to process the paperwork
• Fees for any legal counsel
• Inspections and appraisals
• Surveys, if needed
• Searches on the home’s title
• Title insurance
• Deposit for your escrow account (the account from which property taxes and insurance are paid)
• Recording fees for county or city records
• Evaluating the borrower prior to underwriting the loan

If you choose to pay “points” to reduce your interest rate, that will also be a cost that is due at closing.

Knowing what you might expect at closing can help you plan and save in advance of your loan closing so you won’t be surprised. You can always ask your Utah lender for a good faith estimate (GFE) of these costs so you know how much you will need.