Many first-time buyers focus on the down payment and are surprised to learn there is another set of expenses due at closing. These closing costs pay for the services, records and fees involved in transferring a home and finalizing a loan. Knowing what they are ahead of time makes them much easier to plan for.
What closing costs are
Closing costs are the fees and prepaid expenses paid when a real estate transaction is finalized. Some go to the lender, some to third parties like title companies and appraisers, and some to local governments. The specific items and amounts vary by loan type, lender, location and the terms of your contract, so your own numbers will come from your lender’s estimate rather than a rule of thumb.
Common categories
While every transaction is different, closing costs often fall into a few groups:
- Lender fees: charges for originating and processing your loan, and sometimes optional points paid to adjust your interest rate.
- Third-party services: appraisal, credit report, survey, title search and title insurance, and settlement or attorney fees.
- Government fees: recording fees and, in some places, transfer taxes.
- Prepaid items: upfront amounts for homeowners insurance, property taxes and interest that cover the period around your closing date.
- Escrow deposits: an initial balance for an escrow account if your lender collects taxes and insurance with your monthly payment.
How you will know what to expect
For most residential mortgages, federal rules require lenders to give you a Loan Estimate shortly after you apply. It lays out your expected loan terms and closing costs in a standardized format, which makes comparing lenders easier. Later, before closing, you receive a Closing Disclosure with the final figures. The Consumer Financial Protection Bureau explains both forms at ConsumerFinance.gov.
Compare the two documents carefully. If something changed, ask your lender to explain why.
Who pays what
Buyers and sellers each typically pay certain costs, and local customs play a big role in who covers what. Some costs can be negotiated. In some transactions, a buyer may ask the seller to contribute toward closing costs as part of the offer. Whether that makes sense depends on the market and the rest of the offer, and loan programs may limit how much a seller can contribute. Your agent and lender can help you think through it.
Ways to prepare
- Ask your lender for an estimate early so you can include closing costs in your savings goal.
- Compare Loan Estimates from more than one lender.
- Ask which services you are allowed to shop for, such as certain title or settlement services.
- Look into local assistance programs that may help with closing costs.
- Confirm how and when funds are due, and verify wiring instructions by phone using a known number.
Closing costs can involve tax considerations, so talk with a CPA about anything that may affect your return. For questions about your loan, your lender is the best resource. When you are ready to start your search, reach out through our contact page.
How Closing Works in Georgia
In Georgia, residential closings are typically handled by a closing attorney rather than a title or escrow company acting alone. The attorney’s office reviews title, coordinates with the lender, prepares documents, and conducts the closing. That is why you will often see attorney or settlement fees on a Georgia Closing Disclosure.
Because local practice plays a role in which party pays certain costs, it helps to talk through expectations before you write your offer. We can explain what is customary in Cartersville and the surrounding North Georgia communities, and your lender can show you how those costs appear on your Loan Estimate.
Putting It Into Practice: Reading Your Loan Estimate
The Loan Estimate is designed to be compared side by side, so it is worth learning how to read it. Here is a step-by-step approach.
- Start with page one. Look at the loan amount, interest rate, monthly principal and interest, and whether any of those can increase after closing. Then find the estimated cash to close.
- Turn to the closing cost details. Loan costs are grouped into origination charges, services you cannot shop for, and services you can shop for. Other costs include taxes and government fees, prepaids, and initial escrow.
- Note what you can shop for. Some third-party services may be chosen by you. The lender usually provides a list of providers, but you may be able to compare options.
- Look at the comparisons section. It shows how much you will have paid in principal, interest, mortgage insurance, and loan costs over the first several years, which helps when comparing lenders.
- Check the details. Make sure your name, the property address, and the loan type are correct.
Common Closing Cost Mistakes
- Saving only for the down payment. Closing costs can be significant. Build them into your home fund from the start.
- Comparing interest rates without comparing fees. A lower rate with higher fees may not be the better deal, depending on how long you keep the loan.
- Forgetting prepaids and escrow. These are not fees in the traditional sense, but they are still money you will bring to closing.
- Assuming seller contributions are unlimited. Loan programs often cap what a seller can contribute toward your costs.
- Waiting until the last day to move money. Funds may need to be wired or delivered in a specific way. Confirm the process with the closing attorney’s office in advance, and verify any wiring instructions by phone using a number you know is correct.
Questions Readers Ask
When will I know my final closing costs?
You will receive a Closing Disclosure before closing, which lists your final loan terms and costs. Compare it with your Loan Estimate and ask your lender about any differences.
Can closing costs be rolled into my loan?
Some loan programs allow certain costs to be financed, while others do not. Your lender can explain the options and how they would affect your monthly payment.
What is title insurance, and do I need it?
Lenders typically require a lender’s title insurance policy. An owner’s policy is usually optional and protects your ownership interest. A closing attorney can explain what each covers.
Do sellers pay closing costs, too?
Yes. Sellers typically pay costs such as their own attorney fees and any agreed commissions, along with other items depending on the contract and local practice.
Why did my prepaid interest change?
Prepaid interest depends on your closing date. If the date moves, that figure may change.
For tax questions related to closing costs, talk with a CPA, and for loan details, your lender is the best resource.
