Closing costs are the fees you have to pay to finish a real estate deal, whether you're buying a new home or refinancing your mortgage.
These fees can add up to anywhere from 2% to 5% of your mortgage loan. So it's important to have enough money to cover this cost.
Closing costs comprise of a lot of underlying fees. In this article, we take a look at what fees are contained in closing costs.
This is a fee that the lender charges to process your application for a mortgage. Before you try to get a mortgage, ask the lender for more information.
This is the fee that a real estate attorney charges to prepare and review contracts and agreements for buying a home. In some states, you don't need an attorney to buy or sell property.
This is also called an escrow fee, and it goes to whoever handles the closing. Depending on state law, this could be the title company, the escrow company, or an attorney.
This fee helps speed up the delivery of paper documents that you sign. You might not have to pay this fee if the closing is done online.
A fee that a lender will charge you ($15 to $30) to get your credit reports from the three major credit bureaus. Some lenders might not charge this fee because the reporting agencies give them a discount.
At closing, some lenders want you to put two months' worth of payments for property taxes and mortgage insurance into an escrow account.
When you close on an FHA loan, you have to pay an upfront mortgage insurance premium (UPMIP) of 1.75 percent of the base loan amount (or it can be rolled into your mortgage).
A monthly annual MIP payment is also due, which can be anywhere from 0.45% to 1.05% of your loan's base amount, depending on how long your loan is and how much it is for.
This is a fee paid to a qualified flood inspector. The job of the inspector is to find out if the property is in a flood zone and needs flood insurance (separate from your homeowners insurance policy). Part of the fee includes regular checks to see if the property's flood status changes.
If you buy a condo, townhouse, or property in a planned development, you might have to join the homeowner association for that community (HOA). This fee pays for things like updating documents that need to be done when ownership changes.
There may not be a clear rule in the contract about who pays the fee, so you should find out ahead of time. The seller should give proof of how much the HOA fees are, as well as copies of the HOA's financial statements, notices, and minutes.
At closing, a lender will usually want to see proof that you paid your first year's homeowners insurance premium.
This is the fee paid to a licensed inspector to find out if the property has dangerous paint made with lead.
A one-time fee paid up front to the title company protects the lender in case an ownership dispute or lien comes up that the title search didn't find.
This fee covers the costs the lender has to pay to handle your mortgage. It is usually 1% of the loan amount. Some lenders don't charge origination fees, but instead charge a higher interest rate to cover the costs.
This policy will protect you if someone questions your right to own the home. It is usually up to the person, but legal experts strongly recommend doing it.
This fee pays for a professional pest inspection to look for termites, dry rot, and other damage. Some states and loans that are backed by the government need to be inspected.
This is a fee that must be paid to a professional property appraisal company so that the fair market value of the home can be determined and your loan-to-value (LTV) ratio can be calculated.
Expect to pay any local property taxes that are due within 60 days of closing on the house.
This is a fee that you don't have to pay, but if you do, the lender will guarantee you a certain interest rate for a certain amount of time, usually from the time you get preapproved until closing. A rate lock protects you in case interest rates go up quickly.
Points, also called discount points, are an optional, up-front payment to the lender that lowers your loan's interest rate and, in turn, your monthly payment. One point is equal to 1% of the amount of the loan. When mortgage interest rates are already low, you might not save much money by paying points.
A payment to cover any interest that will be added to your mortgage from the date of closing until the date of your first mortgage payment.
If your down payment is less than 20%, your lender might require that you take out private mortgage insurance (PMI). You might also be required to make the first month’s PMI payment at closing.
This is a fee charged by your local recording office, which is usually a city or county office, for recording public land records.
Surveying companies charge fees to confirm the boundary lines of your property.
These are fees paid to a third party to keep track of your property tax payments and let your lender know about any problems, like late or failed payments..
Title search fees are what the title company charges to look at public records about the property. The title company looks through these records to make sure there are no liens or ownership disputes on the property.
This is a tax that the state or local government charges the seller to give the buyer the title.
The lender will charge you an underwriting fee to check out your finances, income, job, and credit before giving you the final loan approval.
If you have a VA Loan, you pay this fee as a percentage of the loan amount. This fee helps U.S. taxpayers cover the costs of the program. The amount of the fee depends on how you are classified in the military and how much money you want to borrow.
You can pay the fee at closing or add it to your mortgage. Some people in the military don't have to pay the fee.
Buyers aren’t the only ones who pay closing costs. As the seller, you’ll also need to bring a little cash to the closing table to finish out the loan. In addition to attorney fees, escrow fees and HOA fees, there are other fees which a seller pays as part of closing fees.
Let’s take a look at some common closing costs sellers must pay to finalize a home sale.
Typically, the seller pays the premium for title insurance. Title insurance, unlike other forms of insurance, does not need a monthly fee. After the seller makes a single payment at closing, you are covered for the duration of your ownership.
In the majority of states, title insurance costs between 0.5% and 1% of the entire loan amount.
If you're selling your house in an area with low levels of competition, you may need to take additional efforts to close the deal. This might involve paying the buyer money to cover their share of the closing fees.
If closing credits, also known as seller concessions, were included in your purchase agreement, you will be responsible for paying for them at closing.
Typically, sellers are responsible for both the buyer's and seller's real estate agent commissions. This depends on the market in which you are selling. The typical real estate commission is between 5 and 6 percent of the buying price.
The fee is shared evenly between the buyer's agent and the seller's agent.
When you sell your house, you are responsible for property taxes accrued up to the date of sale. Before closing, check with the local county clerk's office to determine the amount of these fees, since they can vary greatly by state and municipality.
Once property taxes are current, the buyer assumes responsibility for payment.
Remember to include in your offer letter that you are providing a reduced rate in return for no agent commission if you are purchasing a house without an agent. When pricing a property, sellers consider commissions.
Without an additional commission charge, you may have more room to negotiate the price of your house. If you purchase a house without an agent and fail to inform the seller while making an offer, the seller's agent may pocket the additional commission.
Local or county governments assess fees whenever a property is transferred. Typically, the seller is liable for transfer taxes and recording expenses. Depending on the state, sellers may be required to pay fees to the county government, the state government, both, or neither.
Typically, transfer taxes are represented as a fixed monetary amount per $100,000 of the home's appraised value.
