| What Are Closing Costs? | | | | $80,000 loan this amounts to a charge of $1,600. |
| When selling your home "For Sale by Owner" (aka | | | | 5. Appraisal Fee: This charge pays for an appraisal |
| FSBO), your lender usually prepares a "Good Faith | | | | report made by an appraiser. |
| Estimate" of closing costs. You are entitled to | | | | 6. Credit Report Fee: This fee covers the cost of |
| receive this estimate no later than three business | | | | a credit report, which shows your credit history. |
| days after you apply for a loan. Because it is an | | | | The lender uses the information in a credit report |
| estimate of the costs you may incur, it may not | | | | to help decide whether or not to approve your |
| contain all potential costs. The lender will not know | | | | loan and how much money to lend you. |
| what all of the costs are going to be. The "Good | | | | 7. Lender's Inspection Fee: This charge covers |
| Faith Estimate" will be an estimate based on | | | | inspections, often of newly constructed housing, |
| previous experience. Actual closing expenses | | | | made by employees of your lender or by an |
| usually exceed the estimate. To avoid problems, | | | | outside inspector. |
| go prepared to pay more than the amount listed | | | | 8. Mortgage Insurance Application Fee: This fee |
| on your estimate. | | | | covers the processing of an application for |
| If you are comparing two lenders, look only at | | | | mortgage insurance. |
| the costs charged by the lender. Lenders can only | | | | 9. Assumption Fee: This is a fee which is charged |
| make educated guesses about the charges made | | | | when a buyer "assumes" or takes over the duty |
| by others. | | | | to pay the seller's existing mortgage loan. |
| You will receive an itemization of costs you may | | | | 10. Mortgage Broker Fee: Fees paid to mortgage |
| have to pay when you buy your home. The | | | | brokers would be listed here. A CLO fee would |
| costs are listed in the order that they should | | | | also be listed here. |
| appear on a Good Faith Estimate you obtain from | | | | 11. Interest: Lenders usually require borrowers to |
| a mortgage lender. | | | | pay the interest that accrues from the date of |
| There are two broad categories of closing costs. | | | | settlement to the first monthly payment. |
| Non-recurring closing costs are items that are paid | | | | 12. Mortgage Insurance Premium: The lender may |
| once and you never pay again such as loan | | | | require you to pay your first year's mortgage |
| origination fees, recording fees, survey fees, etc. | | | | insurance premium or a lump sum premium that |
| Recurring closing costs are items you pay again | | | | covers the life of the loan, in advance, at the |
| over the course of home ownership, such as | | | | settlement. |
| property taxes and homeowner's insurance. | | | | 13. Hazard Insurance Premium: Hazard insurance |
| Closing costs are usually made up of the following: | | | | protects you and the lender against loss due to |
| 1. Attorney's or escrow fees (yours and your | | | | fire, windstorm, and natural hazards. Lenders |
| lender's if applicable) | | | | often require the borrower to bring to the |
| 2. Property taxes (to cover tax period to date) | | | | settlement a paid-up first year's policy or to pay |
| 3. Interest (paid from date of closing to 30 days | | | | for the first year's premium at settlement. |
| before first monthly payment) | | | | 14. Flood Insurance: If the lender requires flood |
| 4. Loan origination fee (covers lender's | | | | insurance, it is usually listed here. |
| administrative costs) | | | | 15. Title Charges: Title charges may cover a |
| 5. Recording fees | | | | variety of services performed by title companies |
| 6. Survey fee | | | | and others. Your particular settlement may not |
| 7. First premium of mortgage insurance (if | | | | include all of the items below or may include |
| applicable) | | | | others not listed. |
| 8. Title insurance (yours and your lender's) | | | | 16. Settlement or Closing Fee: This fee is paid to |
| 9. Loan discount points | | | | the settlement agent or escrow holder. |
| 10. First payment to escrow account for future | | | | Responsibility for payment of this fee should be |
| real estate taxes and insurance | | | | negotiated between the seller and the buyer. |
| 11. Paid receipt for homeowner's insurance policy | | | | 17. Abstract of Title Search, Title Examination, |
| (and fire and flood insurance if applicable) | | | | Title Insurance Binder: The charges on these lines |
| 12. Any documentation preparation fees. | | | | cover the costs of the title search and |
| On closing day, you'll present your paid | | | | examination. |
| homeowner's insurance policy or a binder and | | | | 18. Document Preparation: This is a separate fee |
| receipt showing that the premium has been paid. | | | | that some lenders or title companies charge to |
| The closing agent will then list the money you | | | | cover their costs of preparation of final legal |
| owe the seller (remainder of down payment, | | | | papers, such as a mortgage, deed of trust, note |
| prepaid taxes, etc.) and then the money the seller | | | | or deed. |
| owes you (unpaid taxes and prepaid rent, if | | | | 19. Notary Fee: This fee is charged for the cost |
| applicable). The seller will provide proofs of any | | | | of having a person who is licensed as a notary |
| inspection, warranties, etc. | | | | public swear to the fact that the persons named |
| Once you're sure you understand all the | | | | in the documents did, in fact, sign them. |
| documentation, you'll sign the mortgage, agreeing | | | | 20. Attorney's Fees: You may be required to pay |
| that if you don't make payments the lender is | | | | for legal services provided to the lender, such as |
| entitled to sell your property and apply the sale | | | | an examination of the title binder. Occasionally, the |
| price against the amount you owe plus expenses. | | | | seller will agree in the agreement of sale to pay |
| You'll also sign a mortgage note, promising to | | | | part of this fee. The cost of your attorney and |
| repay the loan. The seller will give you the title to | | | | or the seller's attorney may also appear here. If |
| the house in the form of a signed deed. | | | | an attorney's involvement is required by the |
| You'll pay the lender's agent all closing costs and, in | | | | lender. |
| turn, he or she will provide you with a settlement | | | | 21. Title Insurance: The total cost of owner's and |
| statement of all the items for which you have | | | | lender's title insurance is shown here. |
| paid. The deed and mortgage will then be | | | | 22. Lender's Title Insurance: The cost of the |
| recorded in the state Registry of Deeds, and you | | | | lender's policy is shown here. |
| will be a homeowner. | | | | 23. Government Recording and Transfer Charges: |
| At closing, you will get: | | | | These fees may be paid by you or by the seller, |
| 1. Settlement Statement | | | | depending upon your agreement of sale with the |
| 2. HUD-1 Form (itemizes services provided and | | | | seller. The buyer usually pays the fees for legally |
| the fees charged; it is filled out by the closing | | | | recording the new deed and mortgage (line 1201). |
| agent and must be given to you at or before | | | | Transfer taxes, which in some localities are |
| closing) | | | | collected whenever property changes hands or a |
| 3. Truth-in-Lending Statement | | | | mortgage loan is made, can be quite large and are |
| 4. Mortgage Note | | | | set by state and/or local governments. City, |
| 5. Mortgage or Deed of Trust | | | | county and/or state tax stamps may have to be |
| 6. Binding Sales Contract (prepared by the seller; | | | | purchased as well |
| your lawyer should review it) | | | | 24. Survey: The lender may require that a |
| 7. Keys to your new home | | | | surveyor conduct a property survey. This is a |
| Your Settlement Costs are going to consist of | | | | protection to the buyer as well. Usually the buyer |
| the following: | | | | pays the surveyor's fee, but sometimes this may |
| 1. Sales/Broker's Commission: This is the total | | | | be paid by the seller. |
| dollar amount of the real estate broker's sales | | | | 25. Pest and Other Inspections: This fee is to |
| commission, which is usually paid by the seller. This | | | | cover inspections for termites or other pest |
| commission is typically a percentage of the selling | | | | infestation of your home. |
| price of the home. | | | | 26. Lead-Based Paint Inspections: This fee is to |
| 2. Items Payable in Connection with Loan: These | | | | cover inspections or evaluations for lead-based |
| are the fees that lenders charge to process, | | | | paint hazard risk assessments. |
| approve and make the mortgage loan. | | | | 27. Total Settlement Charges: The sum of all fees |
| 3. Loan Origination: This fee is usually known as a | | | | in the borrower's column entitled "Paid from |
| loan origination fee but sometimes is called a | | | | Borrower's Funds at Settlement" is placed here. |
| "point" or "points." It covers the lender's | | | | This figure is then transferred to line 103 of |
| administrative costs in processing the loan. Often | | | | Section J, "Settlement charges to borrower" in |
| expressed as a percentage of the loan, the fee | | | | the Summary of Borrower's Transaction on page |
| will vary among lenders. Generally, the buyer pays | | | | 1 of the HUD-1 Settlement Statement and added |
| the fee, unless otherwise negotiated. | | | | to the purchase price. The sum of all of the |
| 4. Loan Discount: Also often called "points" or | | | | settlement fees paid by the seller are transferred |
| "discount points," a loan discount is a one-time | | | | to line 502 of Section K, Summary of Seller's |
| charge imposed by the lender or broker to lower | | | | Transaction on page 1 of the HUD-1 Settlement |
| the rate at which the lender or broker would | | | | Statement. |
| otherwise offer the loan to you. Each "point" is | | | | Don't be overwhelmed by all of the fees and |
| equal to one percent of the mortgage amount. | | | | charges. Your closing agent will go over each item |
| For example, if a lender charges two points on a | | | | one line at a time. |