Mortgage Closing Costs Explained

When you buy a home, it might surprise you to learn that there are additional charges, known as closing costs, on top of the purchase price. Mortgage closing costs include fees charged by local governments, lenders and other third parties. Before taking out a mortgage, it’s a good idea to budget for these extra costs, understand your loan options, know which closing costs are negotiable and consider ways to reduce your upfront closing costs.

What Are Mortgage Closing Costs?

Whether you’re buying or selling real estate, there are additional costs to consider. If you’re financing your home purchase, mortgage loan closing costs include the prepayments, fees and other charges you’re responsible for when you close on your home. While the exact figures vary based on the property’s location, your lender, loan terms, contract negotiations and other factors, the table below highlights the estimated closing costs for a $450,000 home purchase.

*These taxes are often divided between buyers and sellers based on local custom and may be a point of negotiation.

What Are Seller Concessions?

When a seller agrees to pay for a portion of a buyer’s closing costs, it’s known as a seller concession or seller assist. Seller concessions are common, occurring in almost half of all home sales and helping offset the upfront cost of buying a home. While sellers can cover a wide range of closing costs, most mortgages have percentage-based limits on seller concessions.

• Conventional loan: Varies based on the down payment amount.
  • Up to 3% when the down payment is less than 10%.
  • Up to 6% when the down payment is between 10% and 25%.
  • Up to 9% when the down payment is 25% or more.

• FHA loan: Up to 6% of the purchase price or appraisal value (whichever is lower).
• VA loan: Up to 4% of the loan amount, though this doesn’t include ordinary buyer closing costs, which can be covered entirely by the seller if both parties agree in writing.
• USDA home loan: Up to 6% of the sale price.

Typical Closing Cost Amounts and How They’re Calculated

For homebuyers, closing costs are calculated by subtracting credits (money owed to you) from debits (money you still owe). The remaining amount is what you have to pay at closing. These costs are either percentage-based fees or charges for specific dollar amounts. Some of the most common buyer closing costs include:

• Appraisal fee ($500 to $700): Most mortgages require an appraisal, which is a professional estimate of the home’s market value. This helps confirm the home’s value and protects both you and your lender.
• Attorney fee ($750 to $2,000, if applicable): Real estate attorney requirements vary by state. In Florida, an attorney isn’t required for closings, but in some states they are. Even when not required, buyers may hire an attorney to review contracts, negotiate terms and assist with title issues. Fees depend on the attorney’s rates and the complexity of the transaction.
• Credit check ($100): A credit check gives lenders a clear picture of your financial situation, including your payment history and balances, to verify that you’re a responsible borrower. 
• Transfer taxes and documentary stamp fees ($1,000 to $2,000): Many states charge transfer taxes or stamp fees when you buy a home or take out a mortgage. For example, Florida charges a documentary stamp tax of $0.35 per $100 of mortgage debt. In Georgia, there’s both a real estate transfer tax and an intangible recording tax.
• Mortgage origination fee ($1,500 to $4,000): Most lenders charge an origination fee to cover the costs associated with processing a loan. This fee typically ranges from 0.5% to 1% of the loan amount, and is often rolled into total costs.
• Homeowners insurance ($2,000+): Lenders almost always require homeowners' insurance on mortgages. At closing, buyers will typically pay 12 months’ worth of homeowners' insurance premiums to ensure the home is protected, as well as an additional 2 to 3 months’ worth of prepaid premiums in an escrow account.
• Prepaid interest ($1,000 to $1,500): Since there’s a gap between when you close on your home and when your mortgage billing schedule begins, lenders charge prepaid interest to cover any remaining days in the month. This cost varies based on your loan terms and your closing date.
• Prepaid taxes ($1,000 to $2,000): To protect their investment, lenders pay your property taxes on your behalf. When you buy a home, lenders charge prepaid taxes up front and keep that money in a special escrow account to cover your upcoming tax bill. This helps you avoid a large one-time tax payment later.
• Title insurance ($1,000 to $3,000): Lender's title insurance, which is typically required, helps protect lenders from unknown liens or potential ownership claims of a property. 

Real Life Examples

Your mortgage closing costs can vary based on where you buy, how much you pay, your mortgage amount, loan terms and other factors. Below are three examples of estimated mortgage closing costs in some of Florida and Georgia’s major metro areas.

Wondering where you might land with your home purchase? Connect with a Seacoast Mortgage Loan Officer.

No-Closing-Cost Mortgages Explained

Buying a home requires significant savings, and while some buyers can comfortably afford the monthly payments, the additional upfront expense of mortgage closing costs can be a challenge. With a no-closing-cost mortgage, the lender will cover mortgage transaction fees and title insurance up front — but there’s a catch. When you agree to a no-closing-cost mortgage, you’ll have higher monthly payments than if you paid the closing costs up front. That’s because your lender will roll these costs into your loan balance or charge a higher interest rate (in some cases, it might be both).

How to Lower Your Mortgage Closing Costs

There are several strategies you can use to potentially lower your mortgage closing costs, from shopping around to negotiating with lenders or sellers. Here are six tips to help reduce the cash you need to bring to the closing table.

1. Shop around: When you apply for a mortgage, the lender must provide a loan estimate, which includes additional costs and services, like origination fees and title insurance. Since these fees vary, comparing loan estimates and fee schedules can help you find the most affordable option.

2. Negotiate with sellers and lenders: Like the purchase price of the home itself, you can often negotiate closing costs with sellers and lenders. Some lenders may be willing to reduce certain fees, while many sellers may cover part of your closing costs through concessions.

3. Consider a no-closing-cost mortgage: If you prefer to finance your closing costs, a no-closing-cost mortgage allows you to avoid upfront charges by spreading them out over the life of the loan. While this option means bringing less cash to closing, your monthly payments will be higher.

4. Explore down payment assistance programs: Throughout the U.S., State Housing Finance Agencies also offer initiatives that include down payment and closing cost assistance, such as Florida Hometown Heroes and the Georgia Dream Homeownership Program. Local authorities may also offer down payment and closing cost assistance programs in the form of deferred mortgages or forgivable loans.

5. Look at low- and no-down-payment loan options: While some buyers choose to put 20% down to avoid private mortgage insurance, low- and no-down-payment options are a common way to reduce the upfront cash needed to buy a home. For military personnel, veterans and their spouses, VA loans offer mortgages with no down payment. USDA home loans also offer 100% financing, provided the home is in an eligible area and you don’t exceed certain income limits. Other low-down-payment mortgage options include FHA loans, which require just 3.5% down, and conventional loans with down payment requirements as low as 3% for those who meet Fannie Mae eligibility criteria.

6. Close at the end of the month: When you close toward the end of the month, you’ll owe less in prepaid interest because you won’t have to cover the remainder of the month in which you close. Just remember that you’ll also have less time before your first scheduled mortgage payment.

Get Your Mortgage from Seacoast Today

Buying a home is a big financial decision, which is why it’s important to understand and budget for mortgage closing costs. While these charges can add thousands of dollars to the total cost of your home, asking for seller concessions, considering a no-closing-cost mortgage or applying for down payment assistance programs can help reduce upfront expenses at closing.

Since mortgage closing costs can vary widely based on your location, loan type, terms and other factors, it’s important to explore your options and know how much you need to close. Ready to explore today’s rates or estimate your payments? Use our mortgage calculator or speak with a local Seacoast mortgage loan officer to find out.