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