The Facts

• Closing costs typically include the following:
  - Credit report
  - Loan application fee
  - Loan origination fee
  - Appraisal fee
  - Property inspection
  - Title search and insurance
  - One year's prepaid private mortgage insurance for loans greater than 80% of the purchase price
  - One year's property taxes
  - Recording and filing fees
  - Tax service fee
  - Transfer tax
  
  Depending on your state and your lender, you may encounter a slightly different list of fees.
  
  

Features

• In a home purchase, the buyer is responsible for paying closing costs by default. It is sometimes possible, however, to get the seller to pay the closing costs, particularly in a depressed housing market in which sellers are having difficulty unloading properties. It is also sometimes possible to finance closing costs by adding them into your mortgage. This will be up to the individual lender.
  
  

Effects

• Because closing costs are an average of 2 to 5% of the home's purchase price, in order to purchase a home, you'll need to save up not only a down payment, but also money for closing costs. While you may be able to get the seller to pay your closing costs, you shouldn't count on it. And if you finance your closing costs, they'll be even more expensive since you'll be paying interest on them.
  
  

Risk Factors

• Closing costs can vary and they can be negotiable. They can also include what are called "garbage fees," or unnecessary charges added by some unscrupulous lenders and paid by some unsuspecting buyers. If you don't review your closing costs carefully, there's a good chance you'll overpay. Go over each line item with your lender/mortgage broker and ask if it can be lowered or eliminated. In some cases, rather than lowering the cost of individual items, the lender may simply offer a credit back towards all closing costs. Remember, the squeaky wheel gets the grease. Well in advance of signing any paperwork, educate yourself about the various types of closing costs, how much they should cost and which ones are likely to be bogus. Also keep in mind that the closing costs you are quoted when you apply for a loan and the closing costs listed on your HUD-1 form that you are actually expected to pay at closing time sometimes differ by thousands of dollars (again a shady practice by some unscrupulous lenders).
  
  

Expert Insight

• Just as you would shop around for a loan to get the best interest rate, you can also use the leverage of competing offers to lower your closing costs.