Closing costs are all those little extra expenses -- from loan-origination fees to title insurance -- you have to pay before getting the keys to the house. When you come to the closing, you need money enough to cover these items along with your down payment. As of 2012, nationwide average closing costs on a $200,000 home were $3,754, a $300 drop from the previous year.
Closing costs cover a variety of fees. When you apply for a loan there's an application fee as well as the loan origination or underwriting fee for processing your application. Your lender will insist on protecting its investment by having you pay for title insurance, a title search and a home appraisal. Other costs may depend on the size of your down payment. If you put down less than 20 percent, for instance, you usually have to take out mortgage insurance. You should also prepare for the cost of state and local transfer taxes and an initial property-tax payment. Taxes can add equal as much as 3 percent of the loan amount.
State by State
Bankrate.com gathered information on closing costs by calling up to 10 lenders in each state and Washington, D.C., to ask the fees on a $200,000 house with a 20 percent down payment. New York state had the highest average costs in both 2011 and 2012 and Texas was in the No. 2 spot both years. The state averages ranged from $5,435 in New York to $3,006 in Missouri, which was in 51st place in the 2012 survey.
Federal law entitles you to get a clear explanation of closing costs from your lender. The HUD-1 form you get at closing -- you can ask for an estimate earlier in the process -- breaks down exactly what fees you are paying and how much they are. It also shows how they compare to the estimates you got earlier. Some costs have to be within 10 percent of the lender's projections. If they're not, you're entitled to a refund of the excess.
Your lender isn't required to issue an official estimate of closing costs until after you apply for the loan. Ask for a list of fees before you apply so that you can compare different lender costs along with the interest rate quotes you get. The "Chicago Tribune" recommends you go over the initial list and the official estimate and ask the lender to waive anything that sounds unnecessary. Courier fees and warehouse fees, for instance, put money in the lender's pocket but you won't see much benefit from them.
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.