Closing Costs

Closing costs include points, prepaid taxes, title insurance, financing costs, items that must be prepaid, and other settlement costs.  These costs generally range between 2-7% of the property value.  You will receive an estimate of these costs from your lender after you apply for a mortgage.  The closing cost fees generally fall into one of three categories:

· Out-of-pocket expenses- Out-of-pocket expenses usually cover third-party services that are directly charged to you, such as fees for appraisals, attorneys, credit reports, title (deed recording), or tax services.  Which services you must pay for varies depending on the property location and home financing program.  If you don't understand what a particular fee covers, or why you are required to pay it, ask your mortgage provider to explain.

· Pre-paid items- Prepaid items can vary based on the type of property and the time of the closing, but generally include homeowner's insurance, mortgage insurance (MI), and fees associated with establishing an escrow account.  

· Points - A Point is a fee that represents 1% of your loan amount. Generally, points can be split into two categories:

. Origination points:      This is an amount collected by the lender for making the loan.

. Discount points:          This is a fee that allows you to purchase a lower interest rate for your mortgage. In other words, in return for paying more discount points up front, you can lower your

interest rate and thus your monthly payment.

When you are negotiating the contract to purchase a home, you may be able to get the seller to pay your required closing costs or you may be able to use the American Family Funds Down Payment Assistance Program to acquire the required funds for closing (Click here for more information ). 

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