Closing costs pay for services necessary to process and close a property loan. An estimation of these costs, known as a good faith estimate, should be provided to a customer during the loan application process.
Closing costs may vary depending on a property's location, mortgage options and mortgage amount. Certain loans allow the seller to pay for a part of, or totally cover, a property's closing costs. Two examples of loans that allow this occurrence are FHA loans and VA loans. A major portion of closing costs is the down payment required for the property. Average closing costs are around 2 to 5 percent of the loan amount.
A portion of closing costs are paid to the lender. Other monies paid in closing costs cover services required before closing on the sale of the home, such as inspections, appraisals, title insurance and taxes.
Buyers may want to check lender fees and closing costs carefully to ensure that they are not being overcharged. Some lenders may advertise lower-than-normal interest rates and recover the difference by charging steep lender fees. Some of the fees included in closing costs may be negotiable. If a loan's closing costs are too high, the buyer may refuse the loan.