What are Closing Costs?

This month on the blog, I am so excited to feature our very first guest post! Our first guest post is from a trusted Loan Officer at IberiaBank that I love getting to work with. JD Hager is a phenomenal lender, and I am so excited for him to break down closing costs for us this month! Read on to learn from JD!

What are closing costs? Closing costs consist of all involved parties’ fees to transact the loan. These include title fees, lender fees, appraiser fees, surveyor fees, & county fees.

How much should I expect to pay in closing costs? Typically closing costs should be around 1% of the loan amount. Meaning, if the loan amount is $400k, the closing costs will be around $4k. The largest factor is the title policy… in TX, the seller typically pays title, but this is negotiated when the offer is sent.

What are the differences in closing costs vs pre-paids and escrows? Closing costs are the true fees of a loan whereas prepaid items & escrow fees are a function of owning a home. Ie: property taxes and homeowners’ insurance. Regardless of financing a home, you will still have property taxes & homeowner’s insurance. At the time of closing, your lender will collect 12 months (the full year) of the homeowners insurance amount as a prepaid item. They will also collect 2-3 months of the homeowners insurance + property taxes into your escrow account.

Is there a way to lower my closing costs? There are two ways to potentially lower closing costs… 1. Have a seller credit worked into your contract. This is negotiated between your agent and the listing agent. 2. Have your lender premium price your interest rate. This means taking a slightly higher interest rate and in return the lender will credit you back a percentage of the loan amount that can be applied to cover closing costs.

Are there any hidden fees? In short, no. All fees are listed on the initial loan estimate. Your lender will likely give you the total amount and ask if you’d like to talk through a breakdown.

Can I buy points to lower my rate as a closing cost? Yes! Rather than a premium price (as mentioned above) you can pay a premium to lower your interest rate. Please always speak with your lender about the “breakeven” associated with this.

 Interested in learning more about closing costs, or mortgages in general? JD would love to answer your questions! You can find his website here.