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Overview
of
Buyer's
Closing
Costs
Closing
costs
are
one
of
the
least
understood
aspects
of
the
home-buying
process.
A
good
home
financing
provider
will
take
the
time
to
answer
questions,
walk
their
customer
through
the
home
financing
process
and
explain
the
required
closing
costs.
Closing
costs
tend
to
vary
from
lender
to
lender,
but
are
usually
any
costs
associated
with
the
purchase
of a
new
home.
Today,
these
costs
generally
range
between
two
and
five
percent
of
the
home's
purchase
price
and
include
three
basic
categories:
1)
out-of-pocket
expenses,
2)
prepaid
items,
and
3)
mortgage
points.
Out-of-pocket
expenses
Out-of-pocket
expenses
include
fees
for
appraisals,
attorneys,
credit
reports,
deed
recording,
tax
services
and
other
miscellaneous
expenses.
These
fees
are
for
services
usually
performed
by a
third
party
and
directly
charged
to
the
borrower.
Most
of
these
fees
are
required,
and
they
can
vary
from
state
to
state.
However,
if
you
see
a
fee
that
you
don't
understand,
you
should
ask
for
clarification.
Prepaid
expenses
Homeowner's
insurance,
mortgage
insurance
and
property
taxes
are
considered
prepaid
expenses.
An
escrow
account
is
set
up
by
the
lender
to
pay
your
property
taxes
and
insurance
premiums
as
they
become
due.
The
escrow
account
is
typically
opened
at
the
time
you
close
on
your
mortgage
loan.
You
will
be
required
to
pay
an
initial
amount
for
each
of
those
items
to
start
the
escrow
reserve
account
at
closing.
This
amount
will
be
applied
to
future
payments
of
your
insurance
premium
and/or
property
taxes.
The
amount
contributed
to
the
escrow
account
is
based
on
your
annual
insurance
premium
and
property
taxes.
Prepaid
expenses
can
vary
based
on
the
type
of
property
and
the
time
of
month
that
the
closing
occurs.
Mortgage
Points
A
mortgage
point
is
equal
to
one
percent
of
the
mortgage
loan
amount
and
reduces
the
interest
rate
of
the
mortgage.
For
example,
if a
$100,000
mortgage
can
be
obtained
at
5.5
percent
with
one
point,
it
might
be 6
percent
with
no
points.
By
paying
an
additional
$1,000
in
points,
the
mortgage
interest
rate
is
reduced
and
the
mortgage
payment
is
roughly
$32
a
month
less
($384
per
year
and
about
$11,520
over
the
life
of
the
30-year
loan).
Paying
mortgage
points
up
front
in
this
case
reduces
monthly
payments
over
the
life
of
the
loan.
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