What are closing costs?
Simply put, closing costs are the costs of buying or refinancing a home and getting a mortgage.
If you’re purchasing a home
You will pay closing costs at settlement in addition to making a down payment. The down payment is the difference between your new home’s purchase price and your loan amount. The closing costs are the various fees paid to the lender, the title company, the local and state government, etc. that cover the expenses of buying and financing the home. In most cases, your closing costs will also include the amount needed to fund a mortgage escrow account for the future payment of property tax and insurance bills. In Maryland, closing costs on a home purchase are generally between 3% and 5% of the purchase price of the home. Closing costs vary based on the property location, property tax amount, whether you’re a first time Maryland home buyer, and other factors. In some cases, the sellers of the property may agree to make a financial contribution towards your closing costs.
If you’re refinancing a home
You will pay closing costs, but these are generally lower than when you purchase, provided you are not changing the ownership of the home. You can choose to pay these closing costs from your own funds, or to include them in the new mortgage amount if the value of the home is high enough.
To get a good estimate of the closing costs for your mortgage, ask for a loan estimate. This document provides the lender’s best estimate of anticipated costs for your purchase or refinance, specific to the home being used as security for the loan.