Closing Costs Overview

What Are The Closing Costs?

Closing fees are fees that you pay at closing on a real estate transaction. Closing refers to the moment when title to property is transferred from seller to buyer. Either the seller or buyer will have to pay closing costs.

What Fees Are You Allowed To Expect At Closing?

The cost of closing varies depending on where you live, what property you purchase, and what type of loan you take out. Below is a list of possible fees. This list may include fees that you might see. However, it is unlikely that your loan will include all the fees.

• Application Fee:

  This fee covers the costs of the lender processing your application. Ask your lender about the fee before you submit an application. This fee can include a credit check to determine your credit score and an appraisal. It is possible to negotiate the application fee with lenders.

• Appraisal:

  This payment is made to the appraiser to verify the fair market value.

• Attorney Fee:

  This is for an attorney to review closing documents on behalf of either the buyer or lender. In all states, this is not mandatory.

• Escrow Fee or Closing Fee:

  These fees are paid to the title company or escrow company for the closing. As an independent party to your home purchase, the title company or escrow will oversee the closing. In some states, a real estate attorney must be present at each closing.

• Courier Fee:

  This covers the cost to transport documents in order to complete the loan transaction as fast as possible.

• Credit Report:

  A tri-merge credit report is pulled in order to determine your credit score and credit history. The interest rate you get on your loan will depend on how good your credit score is.

• Escrow deposit for property taxes & mortgage insurance:

  Often, you will be asked to pay two months' worth of property tax and monthly mortgage insurance payments at closing.

• FHA up-front mortgage insurance premium (UPMIP):

  If an FHA loan is available, you will be responsible for paying the UPMIP, which equals 1.75% of your base loan amount. If you wish, you can also add this to the loan's cost.

• Flood Determination or Life Of Loan Coverage:

  This payment is made to a third party to determine whether the property is in a flood area. Flood insurance is required if the property is located in a flood zone. Insurance is separate and must be paid separately.

• Home Inspection:

  You will most likely have your own home inspection to verify the property's condition and check for any home repairs before closing.

• Home Owners Association Fees:

  This transfer will show the seller that dues have been paid in full, the amount dues, and a copy of minutes, financial statements, notices, and minutes. These documents should be reviewed by the buyer to ensure that there is sufficient reserve to avoid future special assessments. Also, it should be checked to see if there have been any legal actions or special assessments. These documents will also include the Association rules and regulations, CC, and Rs.

• Homeowners Insurance:

  This covers any damages to your house. The first year of insurance is usually paid at closing.

• Title Insurance:

  This insurance protects the lender in the event of a title problem. Similar to title search but always a separate line item.

• Lead-Based Paint Inspection:

  Covers cost of evaluating lead-based painting risk

• Loan Discount Points:

  "Points" refer to prepaid interest. One point equals one percent of the loan amount. This lump sum payment lowers your monthly payments for the term of your loan.

• Title Insurance For Owners:

  This insurance policy protects you in case someone takes over your home. This is often optional.

• Origination Fee:

  This covers the costs of administering the loan. It is usually around 1% of the loan amount, but there are mortgages that don't require an origination fee.

• Inspection For Pests:

  This fee covers the cost of inspecting for termites and dry rot. If termites, dry rot, or other wood damage are found, repairs can be costly.

• Prepaid Interest:

  Most lenders will require you to prepay all interest accrued between closing and the date your first mortgage payment is due.

• Private Mortgage Insurance:

  PMI has required if your down payment is less than 20% of the purchase price. You may be required to pay PMI at closing if you have a monthly PMI payment.

• Property Tax:

  Typically, lenders require that any taxes owed within 60 days of the purchase by the loan servicer be paid at closing.

• Recording Fees:

  Fee charged by your local recording agency, usually a city or county, to record public land records.

• Survey Fee:

  This fee is paid to a survey firm to verify all property lines, such as shared fences. In all states, this is not necessary.

• Title Company Title Search or Exam Fee:

  This fee is charged to the title company to conduct a thorough search on the property's records. The title company searches the deed to your new residence to ensure that nobody else has any claim to it.

• Transfer Taxes:

  This tax is paid when the title passes from the seller/buyer.

• Underwriting Fee:

  This goes to your lender and covers the cost of researching whether you are approved for the loan.

• VA Funding Fee:

  You may need to pay a VA funding charge at closing if you have a VA loan. Or, you can add this fee to the loan cost. The VA charges a percentage of the amount to fund the VA home loan program. However, some borrowers are exempted from this fee. The percentage will vary depending on the type of service you choose and how much your down payment is. This table shows the cost of the VA funding fees.

What Are The Closing Costs?

Homebuyers typically pay closing fees of between 2 and 5 percent of the home's purchase price. If your home is worth $150,000, closing costs could be between $3,000 to $7,500. According to a survey, closing costs average $3,700.

Within three business days of your loan application being received, your lender will provide you with a Loan Estimate. This will include the closing costs for your home. These are estimates only, and fees can change. You may be provided with a revised Loan Estimate if they change to ensure there are no surprises.

Many of the closing costs can be reduced or eliminated, particularly if there are high mailing, administrative, or courier fees charged by your lender. You can shop around to see if there are other lenders that may be willing to lend you money with lower closing fees.

The lender should provide you with a Closing Disclosure Statement detailing closing fees at least three days prior to your closing. Compare this with your Loan Estimate. Ask the lender to explain each line item and why they are necessary. The Closing Disclosure has limitations as to how much fees can rise from the Loan Estimate. There shouldn't be any surprises at closing. If there are any, you can still walk out at closing.

How Can Home Buyers Avoid Closing Costs?

A no-closing cost loan can be a great way to avoid paying upfront fees.

A lender offering a deal like this will typically end up costing you more in the end. The lender might charge you a higher rate of interest for not paying closing costs. Or, the lender might include closing fees in the total mortgage amount. In that case, you'll end up paying interest.

Homebuyers have the option to negotiate with sellers about who pays these fees. Sometimes, the seller may agree to pay the closing fees.