The Real Closing Costs
If You’re a Buyer, Know in Advance What to Expect
Below is an overview of the types of buyer closing costs you may incur on your loan. Some are one-time fees while others reoccur over the life of the loan. Much of this information is also covered on the Definitions/Info page. When you apply for your loan, you will receive a Good Faith Estimate of Settlement Charges and a booklet that will explain these costs in detail. You should receive this information pretty shortly after applying for your loan. I’ll be there to help you with any questions or problems that may arise. Your closing costs can amount to up to 3% of your purchase price.
Loan Origination Fee: This fee covers the lenders administrative costs in processing the loan. A one-time fee often expressed as a percentage of the loan. The origination fee is typically 1% of the loan, but remember, you can obtain a loan with no origination fee and a slightly higher interest rate. Loan Discount: Often called “points”, a loan discount is a one-time charge used to adjust the yield on the loan to what market conditions demand. One point is equal to 1% of the loan amount. This fee is often not added since interest rates are so low.
Appraisal Fee: This is a one-time fee, that pays for an appraisal- a statement of property value for the lender. The appraisal is made by an independent fee appraiser and can cost on average $450 to $550 or more depending on the homes size and location.
Credit Report Fee: This one-time fee covers the cost of the credit report that is run by an independent credit reporting agency and is usually about $400 – $500.
Escrow Fee: This is the fee for the escrow company’s services. It is a one-time fee and is usually split with the seller. It is prorated based on the cost of the home and will cost you anywhere from $150 to $350.
Title Insurance Fees: There are two title policies: a lenders title policy (which protects the lender against loss due to defects on title) and a buyers title policy (which protects you). These are both one-time charges, but one you usually pay for as buyer is the lender’s title policy. It usually costs between $250 and $350. The seller traditionally pays the buyer’s title policy and it costs much more.
Miscellaneous Title Charges: The title company may charge fees for a title search, title examination, document preparation, notaryfees, recording fees, and a settlement or closing fee. These are all one-time charges and add up to about $200.
Documents Preparation Fees: There may be a separate, one-time fee which covers preparation of the final legal papers, including the note and deed of trust. These legal documents run about $150.
Lender Fees: Other lender fees include an underwriting fee, a flood certification fee, an amortization schedule fee, and other miscellaneous fees that should be disclosed by your mortgage lender at loan application. These fees vary dramatically from about $400 to $500. Often times, you can ask your lender to reduce or eliminate these.
Prepaid Interest: Depending on the time of month your loan closes, this charge may vary from a full months interest to just a few days interest. If your loan closes at the beginning of the month, you will probably have to pay the maximum amount. If your loan closes at the end of the month, you will only have to pay a few days interest.
PMI Premium: If your down payment is less than 20%, and you have a conventional loan, you may be required to pay an up front-fee for mortgage insurance (which protects the lender against loss due to foreclosure). You may also be required to put a certain amount for PMI into a special reserve account (an impound account) held by the lender.
Property Taxes & Hazard Insurance: Depending on the month you close, you may be required to reimburse the seller for property taxes. You will also need to pay for an entire years hazard insurance premium up front. In addition, you may also be required to put a certain amount (usually the amount for two months) for taxes and
impounds into a special reserve (impound) account held by the lender.