What Constitutes Closing Costs?

Closing costs are expenses that cover fees associated with the transfer of property ownership, fees paid to state and local governments, and the costs of obtaining a mortgage loan. Some of these fees are negotiable, and could be paid by either the buyer or the seller. Some costs are one-time fees (non-recurring closing costs, such as title search, termite inspection, appraisal, etc.); while other fees such as homeowner's insurance or property taxes are things homeowners will continue to pay on a regular basis.

As part of the loan selection process, mortgage consultants should give homebuyers some idea of how much money they should have in reserve to cover their end of these costs. The Real Estate Settlement Procedures Act (RESPA) requires the lender to provide homebuyers with a Good Faith Estimate within three days of loan application.

RESPA also states that homebuyers have the legal right to request a copy of the HUD-1 Settlement Statement 24 hours before their closing is scheduled. The HUD-1 clearly defines all closing costs, including those that are to be paid by the buyer and the seller. It's a good idea for homebuyers to have both of these forms before their closing so they can compare the estimated costs to the actual costs before they finalize their transaction.