Closing Costs Explained

Mortgage Closing Costs Explained

As homebuyers quickly discover, there are countless things to understand during the mortgage process. You may have to sell your current place, negotiate a deal on a new house in Kentucky, or shop for a loan with an attractive interest rate. One often overlooked aspect of buying real estate – and obtaining a mortgage – is the added expense of closing costs on a home.

We’ve compiled answers to some frequently asked questions about mortgage loan closing costs. It’s likely, however, you’ll also want to speak to someone with expertise on the topic, and the knowledgeable loan officers at Commonwealth Credit Union of Kentucky are ready to help!

What are closing costs?
Put simply, closing costs are expenses over and above the interest rate on the mortgage loan. The closing costs on a house in KY are collected by the lender and cover services performed by either the lending institution or an outside party, such as a home appraiser.

How many types of closing costs are there?
Closing costs not only vary state by state, but institution by institution as well. Some websites list as many as 27 possible charges, but very few consumers pay all of these. At Commonwealth CU, we strive to limit closing costs and keep loans as affordable as possible.
How much can closing costs on a home purchase add to a real estate transaction?
The national average of closing costs is between 2% and 5% of the mortgage. So, on a $200,000 mortgage, closing costs can add up to $5,000. In Kentucky, the average closing costs in 2019 with taxes were $2,276 and without taxes was $2,126.

What is included in closing costs?
To cover their expenses in processing loan applications, mortgage lenders often charge an application fee and loan origination fee. Some origination fees are a flat rate, and some are a percentage of loan value. On a $200,000 mortgage, the two fees usually total between $1,000 and $1,500.

Are “points” on a loan part of the closing costs?
Formally called “discount points,” they are technically prepaid interest on a loan and can be part of closing costs. Each point equals 1% of the loan value. But it’s more useful to think of points as a way of “buying” a lower interest rate.

For example: You are looking at a 30-year fixed mortgage at 4.00% APR. If you are willing to pay an additional point – that is, $2,000 on a $200,000 loan – the rate drops to 3.75% APR. Those willing to pay 2 points ($4,000 in this example) get a rate of 3.5%.

Do all closing costs apply to services offered by the lender?
Closing costs often include fees beyond your lender. For example, an appraiser chosen by the lender will visit the property you want to buy and estimate its value. The reason? If you run into financial trouble, the lender wants to be sure it can sell the property for enough to repay the loan. Another common closing cost is a title search fee, paid to a company that does research to ensure that no one else has a legal claim to the property being purchased.  

Can I get a breakdown of closing costs before I commit to a loan?
You can get a rough estimate of closing costs by using one of the many closing costs calculators online. An even better idea is to contact Commonwealth CU. Like all reputable lenders, we will provide a form called a “Good Faith Estimate” that details the closing costs for the mortgage you’re applying for – because you should always understand exactly what you will owe.

I want to apply for a Federal Housing Administration (FHA) mortgage. Is there anything I should know about FHA closing costs?
The federal government defines which closing costs are allowable as a charge to the borrower and sets limits on those fees. Many lenders’ websites also include closing cost calculators for FHA loans. 

How do I pay the closing costs?
Closing costs should be paid from your savings account the day you close on your mortgage, or you can ask if your lender will roll them into your loan total. The latter approach will make your monthly mortgage payments higher but can ease the initial cost of buying a home.

Where can I find more information about closing costs in Kentucky?
Our loan officers at Commonwealth CU are a great source of information about closing costs in Kentucky. There are also several websites that offer state-by-state breakdowns of typical closing costs, such as this easy-to-read chart from

There are a number of things to consider during the mortgage process, and we’ve only covered a few. Still want to know more? Speak with an expert on the topic and contact one of the knowledgeable loan officers at Commonwealth Credit Union in Kentucky today.