How Much Are Closing Costs For A Conventional Loan?

How much it costs to buy a home beyond down payment remains a mystery for most new buyers. That’s okay.

Here’s a look at potential closing costs associated with a $350,000 home price and final conventional loan amount of $339,500 after putting 3% down.

Please note these are broad-stroke estimates, and actual costs may fluctuate based on various factors like home price, location, and specific lender, among others.

*All figures are estimates and will depend on your scenario. Contact a lender for an accurate quote.

"Cash To Close": A Comprehensive Breakdown

Lenders commonly use the term "cash to close" to denote the total sum that a buyer is expected to bring (or more specifically, wire into the escrow company) on the closing day. This amount includes the down payment, closing costs, prepaid expenses, and other applicable charges. Here's a closer look at what these costs entail:

Down Payment: 3-20% of the Loan Amount

Although it's not classified as a closing cost, the down payment constitutes a significant part of your "cash to close." For a conventional loan, this typically ranges from 3% to 20% of the loan's total value.

Appraisal: $500

The appraisal fee covers the cost of assessing the property's market value. A professional appraiser performs this task, evaluating the condition of the property and comparing it to similar ones in the area to ascertain its worth.

Title Insurance/Escrow Services: $2,000

Title insurance is essential as it protects both the lender and buyer against potential disputes regarding property ownership. The escrow company is a secure, disinterested third party that oversees distribution of all funds involved in the transaction.

Lender Points: 0-1%+ of the Loan Amount - $1,700 (0.5%)

Lender points or discount points refer to a fee paid upfront to the lender at closing. In return, you receive a reduced interest rate on your loan, a process often referred to as "buying down the rate," which can result in considerable long-term savings. However, this fee is negotiable. Shop around enough, and you could find the same rate without points from another lender.

Lender Processing/Underwriting: $750

The underwriting fee is one of the significant costs that fall under closing costs. It covers the cost of the process where the lender assesses the risk associated with giving you the loan. During underwriting, the lender will verify your identification, check your credit history, evaluate your financial situation, and assess your ability to repay the mortgage loan. They also analyze the property's appraisal report and title history to ensure that the property is worth the amount of the loan and that there are no legal issues with its ownership. In general, underwriting ensures that you as a borrower and the property you intend to buy meet the lender's and the loan program's requirements.

County Recording: $100

The county recording fee is the cost to legally register your property purchase and ownership details in the local county records. This fee covers the cost of recording the new mortgage and deed with the county recorder's office.

Credit Report: $75

A credit report fee is the hard cost charged by credit bureaus to obtain your credit report. A new credit report is required at each lender you apply with; you can’t re-use a credit report you found online.

The report includes information such as the number and types of credit accounts you have, the length of time each account has been open, amounts owed, percentage of credit used, your payment history, and any recorded bankruptcies or delinquencies. It gives the lender an overview of your creditworthiness and your ability to repay the loan.

Flood Certification: $30

A flood certification, or 'flood cert,' is a document that states whether or not the property in question lies within a flood zone. This certification is made by referencing FEMA flood maps. If the property is within a flood zone, you'll be required to purchase flood insurance in addition to your regular homeowner's insurance.

6 Months Taxes: $1,750

Lenders require you to pay up to six months of property taxes ahead of time. Funds are placed into an escrow account, which the lender uses to ensure that the property taxes are paid when they're due. This is done to ensure the government's right to tax liens if the property taxes are not paid. The exact amount will depend on the property's location and the local tax rate. In our scenario, property taxes are around $290 per month, so you would prepay approximately $1,750.

14 Months Homeowners Insurance: $1,050

Homeowner's insurance is another cost that's typically prepaid at closing. In this case, the first year of homeowner's insurance, plus a couple of extra months, are collected in advance.

This insurance covers potential damages to the home and gives the lender confidence that their collateral is protected. Like the property taxes, these funds are put into an escrow account from which the annual insurance premium is paid. The precise cost will depend on factors like the home's value, location, and the terms of the insurance policy.

10 Days of Interest (assuming closing on the 20th): $600

If you close on your mortgage mid-month, you will need to pay the interest that accrues from the closing date until the end of the month. This prepaid interest is usually due at closing. So, if you close on the 20th, you'll pay 10 days of interest at closing. The exact amount will depend on your loan's interest rate and the amount borrowed. For example, for a loan amount of $350,000 at an interest rate of 6.5%, the estimated prepaid interest for 10 days would be approximately $600.

Total: $8,555 + Down Payment

As you can see, there are quite a few things you’ll have to pay for aside from your down payment when closing on a home. This list, of course, assumes that your home is not in a flood zone. If it is in a flood zone, your lender will likely require you to carry flood insurance and pay for 12-14 months of it up front! Don’t worry, though, there are some strategies you can employ to help offset the costs of closing on a home.

How To Cover Conventional Closing Costs

If these costs seem overwhelming, rest assured that there are avenues such as seller credits, down payment assistance, and lender credits that can help alleviate these expenses. Sellers might agree to bear a portion of the closing costs in some cases. Additionally, there are special loan programs that offer down payment assistance or grants.

Get Your Personalized Closing Cost Estimate

The figures above provide a general understanding of what to expect. However, for a more precise picture, get a personalized estimate for your specific circumstances.

Get a pre-approval so you’re ready to buy a home. A pre-approval comes with a detailed breakdown of your expected closing costs and total cash to close.