Closing costs, also known as settlement costs, are not included in the price of the property you buy. They are paid separately when the transaction closes and go to cover a number of services involved in selling the property. It is sometimes possible to reduce closing costs by purchasing special package deals from title companies where you buy multiple services.
Closing costs less if you are paying cash for the property. Costs associated with taking a mortgage can be up to seven percent of the total price of the property.
Here is a list of services covered by closing costs:
Broker’s commission (if you are using a broker) – usually 6% of sales price
A number of fees associated with your mortgage (if you have one):
Loan origination fee – normally 1% of total mortgage
Underwriting fee – an underwriter is the last person to review your loan before it can be approved
This next set of fees is usually paid before closing:
Loan discount – also known as “points,” this is a one-time fee that you pay to your lender in order to lower the monthly interest rate on the mortgage
Appraisal fee – covers an appraisal of your property by a state-licensed appraiser (required by most lenders)
Credit report fee – a lender will want to be certain you have good credit
Lender’s inspection fee – most lenders require that a property be inspected before they will approve a loan
Mortgage insurance application fee – insurance for the lender in case of a default on the mortgage
Mortgage premium – one-time fee
The first month’s interest on the mortgage
Homeowner’s (aka Hazard) insurance premium
A number of fees can be deposited with the lender on reserve:
This year’s homeowner’s insurance premium
Mortgage insurance for a variable number of months
City and county property taxes – normally for the next two months
Annual assessments for any local taxes
Fees related to the title to your property:
Closing fee for whoever closes your transaction (i.e. escrow agent)
Abstract of title search, a report detailing the history of your property’s title
Title examination – a search of title records that often goes back over a century to make sure that there are no possible hindrances to your title to the property
Title insurance binder – paid to title company to insure you will buy insurance from them
Document preparation fee – this fee varies, ask for information on exactly what you are paying for, especially any “courier” fees
Notary fees – a notary must witness the signing of the final closing papers
Attorney fees (if you have used an attorney to deal with any title issues
Title insurance coverage- both owner’s coverage to protect your title and lender’s coverage to protect your lender’s collateral
Fees paid to the government:
Recording fees for the deed, mortgage, and any releases
City, county, or state tax stamps for the deed and mortgage – not all states require these stamps
Other fees that don’t fit into the categories above:
Survey fee – pays for measuring the boundaries of the property
Pest inspection fee – most lenders require a pest inspection before approving a loan
Flood certification, earthquake insurance, radon tests, lead paint inspections, etc. – fees specific to your property based on its location and history
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