Mortgage closing costs are between 2% and 5% of loan costs, including property taxes, mortgage insurance, and more. After saving for a deposit, looking for a home, and applying for a mortgage, closing costs can be a nasty surprise.

Knowing what closing costs and budgeting are covered will make the last part of the home buying process easier.

What are the closing costs?

Closing costs include the myriad of fees for services and expenses required to take out a mortgage. You have to pay the closing costs whether you buy or refinance a home.

Most of the closing costs are the buyer’s responsibility, but the seller usually has to pay a portion as well, such as the real estate agent’s commission. (Buying a home for the first time? Read our tips for first-time buyers.)

How much are the closing costs?

The average closing cost for the buyer is between 2% and 5% of the loan amount. This means that if you buy a house for $300,000, you are paying $6,000 to $15,000 in closing costs.

The cheapest way to cover your closing costs is to make a one-time payment out of pocket. You may be able to finance them by doubling them on the loan if the lender allows. However, you then pay interest on these charges over the life of the mortgage.

When buying a home, you can shop around and negotiate certain prices to lower your closing costs. Some states, counties, and cities offer grants or low-interest loan programs to help first-time buyers make the purchase. Check with your local government what is available.

Your lender should describe your closing costs in the credit estimate you receive when you first apply for a loan and in the closing document you receive in the days leading up to the agreement. Read them carefully and ask questions about anything you don’t understand.

Here are the rates the buyer’s closing costs may include:

Real estate costs

Appraisal Fee – It is important for a lender to know if the property is worth as much as the amount you wish to borrow. There are two reasons for this: the lender should check that the amount needed for a loan is justified, and ensure that you can get back the value of your home if you fail to honor your loan. The average cost for a home appraisal by a licensed professional appraiser is between $ 300 and $ 400.

Home Inspection: Most lenders require a home inspection, especially if you get a state-guaranteed mortgage, such as an FHA loan insured by the Federal Housing Administration. Before a bank will lend you hundreds of thousands of dollars, it needs to make sure the house is structurally sound and in good repair. If the inspection produces worrying results, you may be able to negotiate a lower selling price. However, depending on the severity of the issues, you may have the option of terminating your contract if you and the seller cannot agree on how to resolve the issues. Home inspection fees average between $ 300 and $ 500.

Loan fees

Application Fee: These cover the cost of processing your new loan application and include fees such as credit checks and administrative fees. Application fees vary depending on the lender and the amount of work required to process your loan application.

Failure Fee: If the seller has a potential mortgage and you take over the remaining loan amount, you may be charged a variable fee based on the remaining amount.

Legal fees: In some states, an attorney must be present when purchasing a property. The rate depends on the number of hours the lawyer works for you.

Prepaid Interest: Most lenders require buyers to pay interest accrued between the settlement date and the due date of the first monthly mortgage payment. So be prepared to pay this amount when you are finished. It depends on the amount of your loan.

Loan Formation Fee – These are significant fees. Also called subscription fee, administration fee, or processing fee. The loan creation fee is a lender’s fee for evaluating and preparing your mortgage. This may include the preparation of documents, notary fees and attorney fees.