Getting a mortgage doesn’t just mean bringing funds to the table for a down payment. It also means paying closing costs.
Closing costs are the various fees mortgage lenders charge to finalize a home loan, and they apply to new purchase mortgages as well as loans that are refinanced. Closing costs can vary by lender, and they’re meant to cover costs like title insurance, recording fees, and other administrative aspects of originating a loan. This year, closing costs have gotten more expensive for borrowers.
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Closing costs have jumped
During the first half of 2021, average closing costs for a mortgage on a single-family home (including prepaid property taxes) came to $6,837, according to ClosingCorp, a provider of real estate closing data. That represents an increase of 12.3% from the previous year. Without prepaid property taxes, closing costs averaged $3,836, representing a 10.5% year-over-year increase.
Clearly, property taxes have lent to a higher uptick in closing costs. The reason? Property taxes are calculated by taking a home’s assessed value and multiplying it by its local tax rate. When home values climb, property taxes tend to follow suit (though they can also rise during periods when homes lose value). Since home values are up on a national level, it’s easy to see why property taxes have increased — and why closing costs are higher as a result.
How borrowers can cope with higher closing costs
If you’re buying a home or refinancing a mortgage, closing costs are unavoidable. But there are steps you can take to make yours more manageable.
First, know that you generally do not have to pay your closing costs up front. If coming up with that extra money at closing is a hardship, you can almost always arrange to have your closing costs rolled into your mortgage so you can pay them off over time. Be aware that in doing so, you’ll then pay interest on your closing costs. But in the context of what could be a multi-hundred-thousand-dollar loan, …….