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