Loan closing costs are simply additional fees associated with the closing of a loan, most often a mortgage. The costs associated with this may go to pay for local regulations and inspections, as well as lender costs and other such things. In some cases, the payment of loan closing costs may be negotiable. Some sellers will offer to pay those charges as an incentive to get a property sold quicker.
Among the fees from the lenders will be those for points and mortgage insurance. While these loan closing costs are fairly typical, there are ways they can be lowered. For example, it may be possible to get a loan without points, or without as many points, if a borrower is willing to accept a higher interest rate. For a mortgage, making a down payment of a sufficient amount will eliminate the need for mortgage insurance. Often, the down payment required is 20%, though lower amounts may reduce the amount of insurance required. Some loan closing costs will still remain, such as any fees charged to process the loan.
Other closing costs may be ones imposed by the local government. This may include a prepayment of property taxes into an escrow account so that there is sufficient money available that first year. Also, the loan closing costs may also include fees to governments for doing an inspection, making available an abstract, and other such issues.
Though it is impossible to generally estimate how much closing costs will be for any transaction, the final bill should not come as a surprise. In fact, the lenders are required to provide an accurate estimate of the closing costs. While the final figure may be slightly different, the difference should not be significant, in relation to the overall total.
The loan closing costs will also depend on the situation and the geographic location. Insurance, for example, along with taxes, will be very different from one area to the next. Therefore, the closing costs on a home in one area could be significantly more, or less, than the closing costs on a similarly-priced home in another area. Given the fact that these closing costs are somewhat determined by local governments, some will not be negotiable. Others may be.
Determining if a borrower is getting a good deal on loan closing costs is relatively easy. Asking for estimates from more than one lender is a simple way of doing this. Along with the closing costs, the interest rate available may be different. Many may fail to ask about closing costs, and only concern themselves with the interest rate. Doing this, however, ignores a key component of the expenses in getting a loan.