Mortgage Closing Costs 101.
It goes without saying that buying a home is a major financial investment. It is advisable that you understand how much more goes into budgeting for a new home other than monthly mortgage payments. Closing costs are one of those budget entries.
Closing costs are comprised of fees charged by the lender and title company, prorated property taxes and insurance, HOA and real estate expenses. This usually amounts to thousands of dollars. Your Realtor® can explain and estimate what your closing costs will be. They will vary by state, but here is a handy list of terms and definitions of fees. Becoming familiar with these terms in advance will help clarify the settlement statement.
Origination fee, broker, lender or originator fee: A fee charged to create a home loan. It’s often a set percentage of the mortgage amount. Note: You would be wise to check with several different lenders. Some Mortgage Lenders charge an origination fee, others do not.
Discount Points: Mortgage interest (a percentage of your loan amount) paid in advance. In exchange for this upfront lump sum, the lender reduces the interest rate. One point is equal to 1 percent of the loan amount.
Appraisal Cost: Ordered by the Mortgage Lender, this charge originates with an Appraisal Company that renders a professional opinion of the home’s value, independent of its listed or negotiated price. That value is then reckoned against the mortgage amount required by the borrower.
Credit Report Fee: Charged to order a history of your financial life including credit scores. It includes details about your fiscal behavior as a bill payer, the amount of debt you owe, available credit and any inquiries that companies make to obtain this information. A good credit score can result in more favorable loan terms.
Tax Service: A fee to cover the cost of hiring an agency to verify the amount of real estate taxes due and make sure they’re paid. As tax liens take priority over mortgage liens, mortgage companies are naturally concerned that none exist.
Flood Certification: A expense that covers the determination of whether a property is located in a flood zone. Flood insurance is independent of homeowners insurance and if the property is located within a flood zone the new homeowner must purchase a flood insurance policy.
Title Services: Charges for administrative costs (such as title search) associated with the delivery of title insurance, as well as the cost of title insurance.
Title Insurance: A policy that guarantees ownership to a property and qualification to legally transfer it to someone else. Should a problem arise, the title insurer pays any legal damages. A policy may protect the mortgage lender, the home buyer, or both. Be sure to confirm with your mortgage lender, who will be protected by the type of Title Insurance purchased. Typically it will cover the lender and a homeowners policy is an additional charge.
Attorney, Closing or Settlement Fees: The amount paid to an attorney for reviewing and witnessing the mortgage loan transaction.
Document Preparation: A fee charged by the lender to a borrower for preparing the legal documents signed at closing.
Inspections (pest, roof, etc.): Rarely are inspection costs paid at closing. Usually a home inspector will collect this at the time of inspection. Occasionally a specific inspection will be required by the lender and the fee may be included in closing costs.
Postal/Courier: This fee covers what it costs a lender to send paperwork to the other entities involved in the mortgage transaction. If you sign your documents “remotely” meaning somewhere other than at the title company or attorney’s office, a notary, at an additional cost, will witness the signing whether at your home or another designated location.
Survey: A fee charged to hire a licensed surveyor to get an accurate measurement of the property and its boundaries.
Wire Transfer Fee: The amount charged to transfer funds needed to close on a home loan, directly from one entity to another, for instance from your bank to the title company.