Mortgage closing costs, line by line

Loan costs: sections A, B, and C

Section A, Origination Charges, is what you pay the lender and any loan originator to make the loan, including points. Section B, Services You Cannot Shop For, lists third-party services the lender selects, such as the appraisal and credit report. Section C, Services You Can Shop For, lists third-party services where you may choose the provider. Title services often appear in section C; the CFPB explains that title service fees include the title search, the lender’s title insurance policy, and, in most states, the fee for conducting the closing. Section D adds A, B, and C together.

In the example, the lender charges half a point ($1,800) plus a $1,200 origination fee. Section B adds an appraisal, credit report, flood determination, and tax service, and section C lists title services and a survey. Total loan costs come to $6,600. The amounts are illustrations; real fees vary by lender, location, and transaction.

Sources: CFPB: Loan Estimate explainer · CFPB: Regulation Z § 1026.37, Loan Estimate contents · CFPB: Title service fees

Other costs: sections E through H

Section E, Taxes and Other Government Fees, covers recording fees and any transfer taxes, which depend on state and local rules and on who pays under your contract. Section F, Prepaids, covers amounts due before your first regular payment, such as the first year of homeowners insurance and interest from closing until your first payment period begins. Section G, Initial Escrow Payment at Closing, is the starting balance of the escrow account that will pay future tax and insurance bills. Section H, Other, lists items such as an optional owner’s title insurance policy.

Much of this part is not a charge for the loan. The insurance premium and the escrow deposit are owed for the house whichever lender you choose, and prepaid interest is interest on money you have already borrowed. That is why comparing lenders on sections A through C tells you more than comparing total closing costs.

Sources: CFPB: Regulation Z § 1026.37, Loan Estimate contents · CFPB: Title service fees

Prepaid interest and your closing date

Regulation Z describes prepaid interest as the interest due at closing for the time before interest begins to accrue for your first scheduled payment. In the example, that period begins on the first of the next month. At 6.50% on $360,000, interest runs about $64.11 a day. Closing with 15 days left in the month means $961.64 of prepaid interest; closing with 3 days left means $192.33.

A later closing date lowers the cash you need at closing because you borrow the money for fewer days before the first payment period, but it does not change the loan’s rate or its payment schedule after that. Choose a closing date for practical reasons, such as your lease or moving plans, and treat the difference in prepaid interest as a matter of timing.

Sources: CFPB: Regulation Z § 1026.37, Loan Estimate contents

Which costs you can shop for, and how

You can shop for the services in section C, and the lender must give you a written list of providers with the Loan Estimate. You may be able to use a provider that is not on the list if the lender agrees to work with it. The CFPB notes that title services are the largest costs in this category and that you can often save money by shopping around, rather than using a provider recommended by your lender or agent.

If you want an owner’s title policy, which can protect you if someone later claims an interest in the home from before your purchase, the CFPB notes that the total is usually lower when the same provider issues both the lender’s and the owner’s policies. Homeowners insurance is another cost you choose yourself; get quotes early, since the premium drives both section F and your monthly escrow payment.

Sources: CFPB: Closing services you can shop for · CFPB: Shop for title insurance and closing services · CFPB: Owner’s title insurance

Which costs can change before closing

The CFPB groups Loan Estimate costs by how much they can increase without a change in circumstances. Fees paid to the lender or broker, fees for required services you were not allowed to shop for (when the provider is not affiliated with the lender), and transfer taxes generally cannot increase at all. Recording fees, and required services from a provider on the lender’s written list, can increase in total by no more than 10%. Prepaid interest, insurance premiums, initial escrow deposits, and services you shopped for off the lender’s list can change by any amount.

In the example, that means the $3,000 in section A is fixed unless something changes, the $150 recording fee shares a 10% limit with any section C services chosen from the lender’s list, and the $2,761.64 of prepaids and $1,400 escrow deposit can move with your closing date and insurance quote. When a change in circumstances occurs, such as a different loan amount or an appraisal that comes in higher or lower than expected, the lender can issue a revised estimate.

Sources: CFPB: Which Loan Estimate costs can change

From total closing costs to cash to close

Page 2 ends by turning costs into the cash you need. Start with total closing costs, subtract any costs being financed, add the down payment, then subtract the earnest money deposit you have already paid and any seller or other credits. In the example, $11,811.64 of closing costs plus a $40,000 down payment, minus an $8,000 deposit, leaves $43,811.64 due at closing.

Credits reduce that figure, but the CFPB cautions that they are not free. A seller credit usually comes with a higher price for the home, and a lender credit usually means a larger loan amount or a higher interest rate. Either can be the right choice when cash is tight; just treat it as a trade rather than a discount.

Sources: CFPB: Regulation Z § 1026.37, Loan Estimate contents · CFPB: Fees paid at closing

Checking the final numbers

The lender must give you the Closing Disclosure at least three business days before closing, which gives you time to compare the final terms and costs with your latest Loan Estimate. Line up the sections side by side: A through C should match unless something changed, E through H will reflect final tax, insurance, and closing-date figures, and cash to close should reconcile with your deposit and any credits.

If a cost that cannot increase has gone up, or the total of the 10% group has risen by more than 10% without a change in circumstances, ask the lender about it; the CFPB notes you are entitled to a refund of any amount above the allowed limits. Ask about any fee you do not recognize before you sign, not after.

Sources: CFPB: What is a Closing Disclosure? · CFPB: Which Loan Estimate costs can change

Your next-step checklist

• Compare section A across lenders, including points.
• Use the written provider list to shop the services in section C.
• Get homeowners insurance quotes early.
• Ask how your closing date changes prepaid interest.
• Check which costs fall under the 0%, 10%, and unlimited change limits.
• Confirm your cash to close, deposit, and credits before closing day.