Closing costs are an expense paid when a real estate sales contract is completed and the property’s new owner receives its title. Such costs are often in the several thousands of dollars; some are paid by the property buyer, while others are usually paid by the seller. Several of these costs have to be paid when a home equity loan is initiated, as well.

Closing costs often include a variety of expenses with several different recipients. According to wikipedia.org, these costs can include title services, attorney fees, a survey fee, an application fee for the mortgage, points (pre-paid interest), appraisal fees, inspection, warranty services, pre-paid insurance on the property, pre-paid dues to the local Homeowner’s Association (if there is one), and various types of taxes. If the home or business was purchased through a realtor, the former owner will have to pay his or her agency a percentage of the sale price at the closing, usually about six percent.

Home equity loans require some of the same expenses to be paid to the lending institution by the current home owner when they are initiated. The Federal Trade Commission web site states that such expenses can significantly increase the home equity loan’s cost, and may include title, application, appraisal, and attorney fees, as well as points. It recommends that negotiation of some of these costs with the lender may be possible.

The National Association of Realtors web site indicates that a Bankrate, Inc. study found that closing expenses average about $3,000 but vary from one city or state to another; this does not appear to include realtor commissions or the above-mentioned prepaid costs. A recent Denver Post article advised that closing costs never should be more than five percent of the mortgage loan amount. According to the web site militaryconnections.com, closing expenses are regulated for military veterans purchasing property with a VA loan. The Internal Revenue Service web site indicates that a few types of closing costs are tax-deductible, but most aren’t.

Basically, closing costs are a significant but necessary expense in taking out a home equity loan or purchasing/selling a real estate property and initiating a new mortgage. They generally become higher as the home or business being sold is more expensive, and also vary depending upon the locality and specific mortgage lender. These expenses should always be taken into account when budgeting the total cost of a mortgage or home equity loan.