The other people gave good answers...but I would add that too many consumers have "rolled" the closing costs into their mortgages. It might seem easier, but it is in fact an awful investment. You end up paying for the closing costs, potentially for decades, PLUS interest. Its as bad as any credit card, so the only thing you can do is make sure the costs are legitimate, and then decide if owning a home is worth the cost to you.
I thought the same thing the first time I bought a house too, but then I had the mortgage broker go through every charge with me and it all made sense. It made sense because when you buy a house you need to employ quite a few people to make certain you aren't getting ripped off in the process and like yourself, people don't work for free. When you do eventually figure out a way to buy a house, all the money you pay in closing costs doesn't fly out the window (like rent) because you are able to deduct most of these fees from your taxes which will increase your tax refund in the following tax year.
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Posted By - IndianMoney.com Research Team- On-22/02/09
Home loan is a product financed by banks to buy a house for a consumer. There are fixed rates, floating rates, and reducing interest rates available for such loans. Home Loans have gotten popular over the last decade. Today ninety percent (90%) of homes purchased in major Indian cities are funded by a home loan. The variation in interest rate between banks is not as high as that for personal loans, but since a home loan typically lasts for between 10-20 years, even a difference of half a percent can make a huge difference in the final amount you end up paying to the bank. Home loans are provided based on the market value, mainly estimation given by banks or the registration value of the property. Availing various types of house loans to suit one's individual needs at the lowest rates & easy financing can now fulfill the need for a house of his/her.
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Much of the closing costs go to pay the real estate companies who list, show, and arrange closing on the house. Some of it goes to the agent who lists the house for sale and some goes to the agent who helped you select and purchase the home.
That's the way they make their money in the real estate business.
The rest is for taxes, deed registration, title search, pest inspections to protect you, contractor inspections to protect you, title insurance, points the bank requires to secure the loan, etc.
It's not a rip off, it's a cost of doing business. You think it's a rip off that a car dealer makes a profit in his business of selling cars? The real estate agents also have to make a profit in their business of buying/selling homes.