What are Closing Costs?

Closing costs can roughly be broken down into two categories -- recurring costs (fees that you'll have to pay again and again), and nonrecurring costs (one time fees). In terms of nonrecurring costs, probably the most significant fee is the loan origination cost. This is usually one percent or more of the total loan. In general, the more points you add to your mortgage, the lower your rates will be, and the easier it will be to pay off your house and own it. On certain loans, extra points may be called discount points.

You'll also have to appraise and inspect the house. If your home is recently built, the lender may conduct what is known as a 442 inspection to make sure that the house is up to spec in terms of flooring, structural integrity and so forth. Other nonrecurring costs include the credit report check fee, mortgage broker costs, and document preparation costs.

You may want to assess your property tax costs, since paying off your property taxes can be even more crucial to the survival of your loan than making good on your first mortgage payments. Hiring an independent company to make sure that your property taxes stay grounded can cost you a little less than $100, in general.

You'll also have to pay a smattering of additional lenders fees. The underwriter will likely charge you around $300 to administer the loan. You will also have to put some money down to have your home appraisal reviewed. Be aware that lenders can tack on exotic fees, such as warehousing charges. You may want to eliminate or at least bargain down these fees before you get deeper into business with your lender.

Remember that just because these fees and charges are designated as “closing costs” doesn't mean that you have to pay for them all out of pocket now. You can wrap them in your mortgage -- you can even defer payments on them through an interest only mortgage.

Just remember that you will have to pay them at some point in the future. The more of these charges you can get out of the way earlier, the less complicated your loan situation will be down the line.