Closing costs are simply this: the costs of borrowing money, establishing the loan, purchasing title insurance, establishing escrow charges, conducting pest inspections and preparing the necessary documents to finalize the sale. These costs may be significant and are easily overlooked by a first time buyer.

(1) The Costs of Borrowing Money. This includes what some lenders call "discount points," a one-time charge to adjust the yield on the loan to what market conditions demand. Each point equals 1% of the mortgage amount. Two and one-half points on a $100,000 mortgage would cost $2,500.

(2) The Costs of Establishing a Loan. These might include the loan origination fee, and cost of credit reports. Premiums for hazard and mortgage insurance are usually paid at closing. Also, pre-paid interest will be collected for the period between closing and the end of the purchase month.

(3) The Costs of Document Preparation. Title insurance costs pay for the search of public records to determine if the property you want to purchase is free from any other ownership or liens. Recording and transfer fees cover the legal recording of the deed with the proper governmental agencies as well as the transfer of taxes.

Overall closing costs very from state to state. Check with your Century 21® office for an estimate of your closing costs.