Understanding Closing Costs and Your Loan Estimate

Within three business days of receiving your application, you will receive a Loan Estimate — a standardized three-page form that lays out what your mortgage will cost. Knowing how to read it is the single most useful skill a buyer can bring to the process.

What Closing Costs Include

Closing costs are the fees and prepaid items paid when the loan closes. They typically run 2-5% of the loan amount and fall into a few groups:

• Origination charges: The mortgage company's own fees for processing and underwriting the loan.
• Settlement services: Appraisal, credit report, title search, title insurance, and settlement or attorney fees.
• Government fees: Recording fees and transfer taxes, which vary widely between Maryland, Virginia, DC, and Pennsylvania.
• Prepaids and escrow: Homeowners insurance, property taxes, and prepaid interest collected up front to fund your escrow account.

Reading the Loan Estimate

Page 1 summarizes the loan terms, your projected monthly payment, and the estimated cash you need at closing.

Page 2 itemizes every closing cost. Section A lists origination charges. Section B lists services you cannot select a provider for, such as the appraisal. Section C lists services where you may choose your own provider, such as title insurance. Sections E through G cover government fees, prepaids, and the initial escrow deposit.

Page 3 shows comparison figures — total payments over five years and the annual percentage rate — so two Loan Estimates can be compared side by side.

What Can Change and What Cannot

• Zero tolerance: Origination charges and fees for services you cannot choose may not increase at closing, except for a valid changed circumstance.
• 10% tolerance: Fees for services where you used a provider from our written list may increase by no more than 10% in total.
• Can change: Prepaids, escrow deposits, and fees for providers you selected on your own may change to reflect actual costs.

Ways to Reduce What You Bring to Closing

• Negotiate seller credits toward closing costs in your purchase contract.
• Ask about down payment assistance programs in your state.
• Compare Section C providers — title and settlement fees vary.

Next Steps

If you already have a Loan Estimate, we are glad to walk through it with you line by line. Contact us with your questions, or start your application and we will prepare yours.