Closing Costs, how much are they?

As equally important as interest rate is closing costs when choosing your mortgage loan. Closing costs are different for each lender and the amount is inversely related to interest rate. So the higher your closing costs, the lower your rate and vice versa.

Closing costs can be broken down into two categories: lender fees and third party fees. Lender fees are those that are charged by the lender and therefore the lender has control over these fees. It's very helpful to know this when comparing loans from different lenders. Lenders have to assume what the third party fees are and their assumptions are not always the same. So to compare use lender fees and rate and take out third party fees. Third party fees will be the same independent of the lender you use.

I'll start with lender fees. There is typically an Underwriting fee, a Processing fee, a Tax Service fee, a Document Prep or Attorney fee, and an Application fee. These fees vary from lender to lender but here are there rough ranges. UW fees are $400 to $700, Processing is $350 to $550, Tax service is around $100, Doc Prep from $85 to $350 and Application is $250 to $450. A lot of times the Application fee will cover the appraisal and credit report.

So expect between $1,200 and $2,000. Of course the lender can work these into the rate if they wish, please see my previous post for more info.

Third party fees include: Title policy, Title Escrow fee, Survey, Recording Fees, and HOA transfer fees. The owner's title policy is paid by the seller in Texas, but the buyer is responsible for paying for the Lender's title policy to cover their interest in the property. This is usually $100 to $250. The Escrow fee is charged by the title company to handle the transaction and is $200 to $400. Surveys are $440, but many times the seller will already have one that you can use for free. Recording fees are $150 or so. HOA fees are $200 to $600, this is only applicable if the property has a Home Owner's Association.

On average you're looking at about $650 if there is an existing survey and there is no HOA.

The total of all closing costs will then be between $2000 and $3000. There are also items that you pre-pay at closing, called you guessed it "pre-paids". Items such as interest, insurance and taxes. I'll cover that in a post later, so please check back next month.

Interest rate vs Closing costs

When looking for a mortgage many people are in search of the "best rate". While getting a low rate is certainly important, buyers must look at all aspects of a loan before deciding if the loan really is best for them. Brokers and banks can offer a variety of rates, but with each different rate there is an associated set of closing costs.

For instance Broker 1 might advertise 6.0% interest and Broker 2 might advertise 6.25%. The first question you'd want to ask is how much are each of their closing costs. If they are equal or close Broker 1 has the better option. However it's more likely that Broker 1 has higher costs. You'd then have to decide whether it's better for you to pay more now to get a better rate, or to save your cash although paying a higher rate over time.

To make it a little easier to compare both offers, it's usually wise to pick which option would work best for you and then ask the other Broker what set of closing costs he'd offer at that selected rate. This way you'll have the structure you want and can compare apples to apples.


This short post was meant to explain the relation that rate and closing costs have, not to fully explain how to pick your mortgage broker. When looking for and choosing your broker there are many more characteristics that you'll want to evaluate such as: having the right loan program for you, disclosing fees upfront, trustworthyness and ability to close your loan among others.

Feel free to email me with questions. I really enjoy helping people understand the loan process.