Buying a Home? Prepare to Pay This Much in Closing Costs

Hint: It's not a small number.

If you're gearing up to buy a home, you're no doubt aware that you'll need to bring a down payment to your closing. Depending on the price of your home, that sum may be substantial. But it's not just a down payment you need to worry about when you sign a mortgage. You'll also have to deal with closing costs.

Closing costs are the various fees mortgage lenders charge to finalize a mortgage, and they cover a lot of different things. These include:

• Application fees
• Title fees and insurance
• Appraisal fees
• Recording fees

Often, closing costs also include pre-paid property taxes. If you're buying a home in an area with expensive property taxes, that could increase the amount of money you need to fork over when you close on your home loan.

A recent Fannie Mae report found that average closing costs amount to $6,693 across all home buyers. Among first-time buyers and low-income first-time buyers, they're a bit lower at $6,228 and $5,298, respectively.

But all told, closing costs can be a huge expense on the road to buying a home. And it's so important to gear up for them.

Should you pay off your closing costs over time?

It's hard to get out of paying closing costs when taking out a mortgage. Some lenders might advertise a no-fee mortgage that doesn't come with closing costs. But what those lenders will commonly do is bake their closing costs into a higher mortgage rate so that ultimately, they end up getting their money.

But while closing costs may be inevitable when you're getting a mortgage, you don't necessarily need to pay those fees on the day of your actual closing. Often, lenders will let you roll them into your mortgage and pay them off over time.

The downside there is having higher monthly payments. But if you're taking out a large mortgage, rolling those fees into your payments may not make a huge difference.

For example, say you're doing your best to keep your mortgage payments to a minimum, and so you've saved up a 50% down payment on a home and are only borrowing $100,000 to finance it. That means you may be looking at a pretty low recurring mortgage payment. But if you're taking out a $400,000 loan, adding another $6,693 (or whatever your specific closing costs amount to) to the total may not be such a big deal.

Now to be clear, the higher your loan amount, the higher your closing costs are likely to be. But if money is tight at the time of your closing, it could pay to roll those fees into your home loan and just pay them off over time.

Can you negotiate closing costs?

There are some aspects of your closing costs that you may be able to reduce. Loan application fees, for example, are fees lenders can charge somewhat arbitrarily, so you may be able to get your lender to lower that fee to get your business. But some fees, like recording fees (that allow your mortgage to be entered into public record) aren't set by lenders. Rather, they're set at the municipal level, so your lender may not have any say in what you're charged.

It certainly pays to see if your lender is willing to lower its closing costs, whether you're paying them upfront or over time. But don't be shocked if the number you're presented with initially is the number your lender decides to stick to.