Some home buyers can be caught off guard by a lot things before they even set foot inside their new home. At Premier Mortgage Resources, we do everything we can to try to prevent that from happening.

The process of buying a home involves a lot of moving parts, some of which are unfamiliar to first-time home buyers.

Closing costs, or the price paid by the seller and buyer to complete the real estate transaction process, are inevitable. If the buyer or seller isn't expecting these costs they can prompt some raised eyebrows, too.

The unexpected costs can throw a curve ball to budgets of families planning their big move. With so much on the line, including a down payment for the purchase of a home, understanding how closing costs work is vital.

Here's some of the fees typically included in closing costs, or the fees associated with buying a home:

  • Mortgage application/origination fees. This could be paid before closing, or at the time of close.  
  • Escrow fee. This is paid to the title company for managing the administrative responsibilities of the process.  
  • Inspection fees. Some home inspections may be required, while others are for peace of mind. Regardless, these fees are typically paid for by the buyer unless that changes during negotiations with the seller.  
  • Appraisal. Lenders typically require a home appraisal before agreeing to fund the loan amount.
  • Home insurance. New homeowners typically pay for a year of home insurance in case there are any unexpected repairs that come up.
  • Private mortgage insurance. Consumers who pay less than 20 percent on their down payment may need to purchase private mortgage insurance (PMI). The first month of PMI is usually included in closing costs.
  • Loan interest. A prorated amount of the home loan may be applied to the costs at closing.

Remember that various closing costs are usually shared between the buyer and seller. Be sure to consult with your real estate agent and loan officer for advice on handling the cost-sharing.