| What Are Closing Costs? When selling your home | | | | This fee covers the cost of a credit report, which |
| "For Sale by Owner" (aka FSBO), your lender usually | | | | shows your credit history. The lender uses the |
| prepares a "Good Faith Estimate" of closing costs. | | | | information in a credit report to help decide whether or |
| You are entitled to receive this estimate no later than | | | | not to approve your loan and how much money to |
| three business days after you apply for a loan. | | | | lend you. 7. Lender's Inspection Fee: This charge |
| Because it is an estimate of the costs you may incur, it | | | | covers inspections, often of newly constructed |
| may not contain all potential costs. The lender will not | | | | housing, made by employees of your lender or by an |
| know what all of the costs are going to be. The "Good | | | | outside inspector. 8. Mortgage Insurance Application |
| Faith Estimate" will be an estimate based on previous | | | | Fee: This fee covers the processing of an application |
| experience. Actual closing expenses usually exceed | | | | for mortgage insurance. 9. Assumption Fee: This is a |
| the estimate. To avoid problems, go prepared to pay | | | | fee which is charged when a buyer "assumes" or |
| more than the amount listed on your estimate. If you | | | | takes over the duty to pay the seller's existing |
| are comparing two lenders, look only at the costs | | | | mortgage loan. 10. Mortgage Broker Fee: Fees paid to |
| charged by the lender. Lenders can only make | | | | mortgage brokers would be listed here. A CLO fee |
| educated guesses about the charges made by others. | | | | would also be listed here. 11. Interest: Lenders usually |
| You will receive an itemization of costs you may have | | | | require borrowers to pay the interest that accrues |
| to pay when you buy your home. The costs are listed | | | | from the date of settlement to the first monthly |
| in the order that they should appear on a Good Faith | | | | payment. 12. Mortgage Insurance Premium: The lender |
| Estimate you obtain from a mortgage lender. There | | | | may require you to pay your first year's mortgage |
| are two broad categories of closing costs. | | | | insurance premium or a lump sum premium that |
| Non-recurring closing costs are items that are paid | | | | covers the life of the loan, in advance, at the |
| once and you never pay again such as loan origination | | | | settlement. 13. Hazard Insurance Premium: Hazard |
| fees, recording fees, survey fees, etc. Recurring | | | | insurance protects you and the lender against loss due |
| closing costs are items you pay again over the course | | | | to fire, windstorm, and natural hazards. Lenders often |
| of home ownership, such as property taxes and | | | | require the borrower to bring to the settlement a |
| homeowner's insurance. Closing costs are usually | | | | paid-up first year's policy or to pay for the first year's |
| made up of the following: 1. Attorney's or escrow fees | | | | premium at settlement. 14. Flood Insurance: If the lender |
| (yours and your lender's if applicable) 2. Property taxes | | | | requires flood insurance, it is usually listed here. 15. Title |
| (to cover tax period to date) 3. Interest (paid from date | | | | Charges: Title charges may cover a variety of |
| of closing to 30 days before first monthly payment) 4. | | | | services performed by title companies and others. |
| Loan origination fee (covers lender's administrative | | | | Your particular settlement may not include all of the |
| costs) 5. Recording fees 6. Survey fee 7. First | | | | items below or may include others not listed. 16. |
| premium of mortgage insurance (if applicable) 8. Title | | | | Settlement or Closing Fee: This fee is paid to the |
| insurance (yours and your lender's) 9. Loan discount | | | | settlement agent or escrow holder. Responsibility for |
| points 10. First payment to escrow account for future | | | | payment of this fee should be negotiated between the |
| real estate taxes and insurance 11. Paid receipt for | | | | seller and the buyer. 17. Abstract of Title Search, Title |
| homeowner's insurance policy (and fire and flood | | | | Examination, Title Insurance Binder: The charges on |
| insurance if applicable) 12. Any documentation | | | | these lines cover the costs of the title search and |
| preparation fees. On closing day, you'll present your | | | | examination. 18. Document Preparation: This is a |
| paid homeowner's insurance policy or a binder and | | | | separate fee that some lenders or title companies |
| receipt showing that the premium has been paid. The | | | | charge to cover their costs of preparation of final legal |
| closing agent will then list the money you owe the | | | | papers, such as a mortgage, deed of trust, note or |
| seller (remainder of down payment, prepaid taxes, etc.) | | | | deed. 19. Notary Fee: This fee is charged for the cost |
| and then the money the seller owes you (unpaid taxes | | | | of having a person who is licensed as a notary public |
| and prepaid rent, if applicable). The seller will provide | | | | swear to the fact that the persons named in the |
| proofs of any inspection, warranties, etc. Once you're | | | | documents did, in fact, sign them. 20. Attorney's Fees: |
| sure you understand all the documentation, you'll sign | | | | You may be required to pay for legal services |
| the mortgage, agreeing that if you don't make | | | | provided to the lender, such as an examination of the |
| payments the lender is entitled to sell your property | | | | title binder. Occasionally, the seller will agree in the |
| and apply the sale price against the amount you owe | | | | agreement of sale to pay part of this fee. The cost of |
| plus expenses. You'll also sign a mortgage note, | | | | your attorney and/or the seller's attorney may also |
| promising to repay the loan. The seller will give you the | | | | appear here. If an attorney's involvement is required by |
| title to the house in the form of a signed deed. You'll | | | | the lender. 21. Title Insurance: The total cost of owner's |
| pay the lender's agent all closing costs and, in turn, he | | | | and lender's title insurance is shown here. 22. Lender's |
| or she will provide you with a settlement statement of | | | | Title Insurance: The cost of the lender's policy is shown |
| all the items for which you have paid. The deed and | | | | here. 23. Government Recording and Transfer |
| mortgage will then be recorded in the state Registry of | | | | Charges: These fees may be paid by you or by the |
| Deeds, and you will be a homeowner. At closing, you | | | | seller, depending upon your agreement of sale with the |
| will get: 1. Settlement Statement 2. HUD-1 Form | | | | seller. The buyer usually pays the fees for legally |
| (itemizes services provided and the fees charged; it is | | | | recording the new deed and mortgage (line 1201). |
| filled out by the closing agent and must be given to | | | | Transfer taxes, which in some localities are collected |
| you at or before closing) 3. Truth-in-Lending Statement | | | | whenever property changes hands or a mortgage |
| 4. Mortgage Note 5. Mortgage or Deed of Trust 6. | | | | loan is made, can be quite large and are set by state |
| Binding Sales Contract (prepared by the seller; your | | | | and/or local governments. City, county and/or state |
| lawyer should review it) 7. Keys to your new home | | | | tax stamps may have to be purchased as well 24. |
| Your Settlement Costs are going to consist of the | | | | Survey: The lender may require that a surveyor |
| following: 1. Sales/Broker's Commission: This is the total | | | | conduct a property survey. This is a protection to the |
| dollar amount of the real estate broker's sales | | | | buyer as well. Usually the buyer pays the surveyor's |
| commission, which is usually paid by the seller. This | | | | fee, but sometimes this may be paid by the seller. 25. |
| commission is typically a percentage of the selling price | | | | Pest and Other Inspections: This fee is to cover |
| of the home. 2. Items Payable in Connection with Loan: | | | | inspections for termites or other pest infestation of |
| These are the fees that lenders charge to process, | | | | your home. 26. Lead-Based Paint Inspections: This fee |
| approve and make the mortgage loan. 3. Loan | | | | is to cover inspections or evaluations for lead-based |
| Origination: This fee is usually known as a loan | | | | paint hazard risk assessments. 27. Total Settlement |
| origination fee but sometimes is called a "point" or | | | | Charges: The sum of all fees in the borrower's column |
| "points." It covers the lender's administrative costs in | | | | entitled "Paid from Borrower's Funds at Settlement" is |
| processing the loan. Often expressed as a percentage | | | | placed here. This figure is then transferred to line 103 |
| of the loan, the fee will vary among lenders. Generally, | | | | of Section J, "Settlement charges to borrower" in the |
| the buyer pays the fee, unless otherwise negotiated. 4. | | | | Summary of Borrower's Transaction on page 1 of the |
| Loan Discount: Also often called "points" or "discount | | | | HUD-1 Settlement Statement and added to the |
| points," a loan discount is a one-time charge imposed | | | | purchase price. The sum of all of the settlement fees |
| by the lender or broker to lower the rate at which the | | | | paid by the seller are transferred to line 502 of Section |
| lender or broker would otherwise offer the loan to you. | | | | K, Summary of Seller's Transaction on page 1 of the |
| Each "point" is equal to one percent of the mortgage | | | | HUD-1 Settlement Statement. Don't be overwhelmed |
| amount. For example, if a lender charges two points | | | | by all of the fees and charges. Your closing agent will |
| on a $80,000 loan this amounts to a charge of $1,600. | | | | go over each item one line at a time. |
| 5. Appraisal Fee: This charge pays for an appraisal | | | | The author, Kyle Soper, is the website Manager of |
| report made by an appraiser. 6. Credit Report Fee: | | | | Virtual FSBO ( a FSBO website created in 1999. |