Mortgage closing costs: what belongs in the conversation

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What closing costs include

Closing costs are the charges paid to complete a real estate purchase or refinance, beyond the down payment. They pay the lender for making the loan, pay the companies that appraise, insure, and close the transaction, pay state and local taxes and recording fees, and set up your first months of property taxes and insurance.

Because these groups behave differently, the useful conversation is not only “how much are closing costs?” but “which of these can change, who pays each one, and where is there room to shop or negotiate?”

Your two documents

The Loan Estimate and the Closing Disclosure

• Loan Estimate

  Delivered within three business days after you apply. It shows your estimated rate, payment, and closing costs in a standard format, so offers from different lenders can be compared directly.

• Closing Disclosure

  Delivered at least three business days before closing. It shows the final terms and costs. Compare it with your Loan Estimate line by line.

Which costs can change

Changes in circumstances, such as a different loan amount or property value, can lead to a revised Loan Estimate. If a fee exceeds its limit without a valid reason, the lender must refund the excess.

Breakdown

The four categories of closing costs

1. Lender charges

Origination or underwriting fees, and any discount points you choose to pay to lower your rate. Lender credits work the other way: a slightly higher rate in exchange for help with closing costs. Points and credits are a trade-off between cash today and cost over time.

2. Third-party services

Appraisal, credit report, survey, inspections, title search, settlement or closing fee, and the lender’s title insurance policy. Your Loan Estimate shows which services you can shop for.

3. Taxes and government fees

Recording fees and, in Florida, documentary stamp and intangible taxes. These are set by law, so the question is not the rate but who pays them under your contract.

4. Prepaids and initial escrow

Prepaid interest from closing to the end of the month, your first year of homeowners insurance, and the initial deposit into your escrow account for future taxes and insurance. These are not fees in the usual sense; they are costs of owning the home that you pay in advance.

Florida focus

Florida taxes and title insurance

Documentary stamp and intangible taxes

• Deed documentary stamp tax

  $0.70 per $100 of the price in most of Florida. In Miami-Dade County it is $0.60 per $100 for a single-family residence, and $0.60 plus a $0.45 surtax per $100 for other property types. On the FAR/BAR contracts, the seller pays this.

• Documentary stamp tax on the note

  $0.35 per $100 of the new loan amount. On the FAR/BAR contracts, the buyer pays taxes on the note and mortgage.

• Nonrecurring intangible tax

  2 mills, or 0.2%, of the new mortgage amount, also paid by the buyer under the FAR/BAR contracts.

Here is how those rates work on a hypothetical $500,000 purchase outside Miami-Dade County with a $400,000 loan:

Illustrative only. Your contract and closing agent determine the final figures.

Title insurance

Florida sets title insurance premium rates by rule, so the premium for the same coverage is the same whichever title insurer underwrites it. For an original owner’s policy, the current schedule is $5.75 per $1,000 of coverage up to $100,000 and $5.00 per $1,000 from $100,000 to $1 million. Related charges, such as endorsements, title search, and closing fees, can vary by company.

Who pays for the owner’s policy depends on the contract. The FAR/BAR contract lets the parties choose whether the seller or the buyer designates the closing agent and pays for the owner’s policy, and includes a Miami-Dade and Broward regional option in which the buyer generally pays the owner’s policy premium. The buyer pays for the lender’s policy in each option.

Timing matters

Prepaids, escrow, and prorations

Property taxes

Florida property tax bills are mailed in the fall and can be paid from November through March, with discounts for early payment: 4% in November, 3% in December, 2% in January, and 1% in February. Taxes become delinquent on April 1. At closing, taxes for the year are typically prorated between buyer and seller through the day before closing, based on the current or most recent tax information available.

Initial escrow deposit

If your loan has an escrow account, you fund it at closing so it can pay future tax and insurance bills. Federal rules allow the servicer to hold a cushion of no more than one-sixth of the estimated annual disbursements, roughly two months.

Insurance premiums

Expect to pay the first year of homeowners insurance at or before closing, plus flood insurance if required. In Florida, these premiums can be one of the largest prepaid items, so get a quote early in your inspection period.

Strategy

Ways to manage the total

• Compare Loan Estimates

  Look at lender charges and the rate together. A lower fee with a higher rate can cost more over time.

• Shop the services you can

  Your Loan Estimate lists which third-party services you are allowed to shop for.

• Decide on points or credits deliberately

  Paying points makes sense only if you keep the loan long enough to recover the cost.

• Negotiate seller contributions

  For Fannie Mae conventional loans, interested-party contributions are limited to 3% when the loan-to-value is above 90%, 6% from 75.01% to 90%, 9% at 75% or less, and 2% for investment properties.

• Plan for the escrow deposit

  Make sure it is included in your cash to close from the start. Our pre-approval guide covers how to budget for it.

Final steps

Before closing day

• Compare the Closing Disclosure with the Loan Estimate

  Ask about any line that changed, and confirm the cash to close.

• Review the settlement statement

  The closing agent’s statement shows prorations, credits, and who pays each charge under your contract.

• Arrange funds early

  Confirm the accepted method of payment and allow time for wires to arrive.