What Are Closing Costs?
On your estimated cost sheet, provdied by your Lender or your Agent, you will see that there are many fees associated with purchasing a home. You are responsbile for your down payment (this amount will range from 3% to 20% of your purchase price depending on your loan program) AND your closing costs. Your down payment and closing costs combined equals the amount of money you will need to bring to closing day. Within three days of your closing date you will be issued a preliminary settlement statement that shows the breakdown of fees and official number needed for closing day.
As a responsible buyer, you should be familiar with these costs that are both mortgage-related and government imposed. Although many of the fees may vary by your situation or loan type, here are some common fees:
This fee pays for the appraisal of the property. Once you are under contract, an appraisal is ordered by the lender. The appraiser will go to the property and evaluate neighborhood comparables to determine the true value of your home.
The only real estate brokerage related fee that our buyers take on is our Broker Fee or BAC Fee. This fee is charged to cover administrative support and house the file for auditing purposes.
CREDIT REPORT FEE
This fee covers the cost of the credit report requested by the lender. Some lenders may require that this fee is paid upfront when you applied for your loan and others will line item this cost on your settlement statement.
LOAN ORIGINATION FEE
This fee covers the lender's loan-processing costs. The fee is typically one percent of the total mortgage.
LOAN DISCOUNT POINTS
You will pay this one-time charge if you have chosen to pay points to lower your interest rate. Each point you purchase equals one percent of the total loan. Please note that paying points is optional and something that should be discussed at length with your lender.
Every financed property is required to have a termite inspection/wood destroying insect inspection. This is the only inspection done during your pending period that you do not pay for upfront. The termite inspection will be ordered by the title company and a report of the findings will be sent to you.
These fees generally include costs for the title search and title examination (essentially a background check on the property), title insurance , document preparation and other miscellaneous title fees.
If you buy a home with a low down payment, a lender usually requires that you pay a fee for mortgage insurance. This fee protects the lender against loss due to foreclosure. Once you have at least 20% equity in your home, however, you should be able to apply to eliminate this insurance.
PREPAID INTEREST FEE
This fee covers the interest payment from the date you purchases the home to the date of your first mortgage payment. Generally, if you buy a home early in the month, the prepaid interest fee will be substantially higher than if you buy it towards the end of the month.
Your lender will start an account that holds funds for future annual property taxes and home insurance. At least one year advance plus two months worth of homeowner's insurance premium will be collected. In addition, taxes equal approximately to two months in excess of the number of months that have elapsed in the year are paid at closing. (If six months have passed, eight months of taxes will be collected.)
RECORDING FEES AND TRANSFER TAXES
This expense is charged by most states for recording the purchase documents and transferring ownership of the property.
Please note that this list may not include every fee for every situation. If you are purchasing a home with cash, the loan related fees do not apply to you.