Closing Costs
Closing costs generally fall into several categories, including lender-related expenses, prepaid items, reserves, and other settlement costs. Below is a breakdown of the most common costs you may encounter.
Non-Recurring Closing Costs Associated With the Lender
Appraisal Fee: Cost varies. Because the property serves as collateral for your mortgage, the lender will want to verify that its value is comparable to similar properties based on recent sales in your area.
Credit Report: $7–$60. The lender will want to verify your credit rating.
Flood Certification Fee: Cost varies. This certification determines whether your property is located in a federally designated flood zone.
Flood Monitoring: Cost varies. This service monitors your property in the event that flood zones are remapped.
Lender’s Inspection Fee: Cost varies. Also known as a 442, this inspection is typically required for newly constructed properties to verify that construction is complete, including carpeting and flooring.
Loan Discount: Cost varies. These are discount points, with each point equal to 1 percent of the loan amount, in addition to the loan origination fee.
Loan Origination Fee: Cost varies. Also called “points,” this fee is charged by the lender. Typically, the more you pay in points, the lower your interest rate.
Mortgage Broker Fee: Cost varies. This may also include any broker processing fees.
Tax Service Fee: $70–$80. This fee is paid to an independent service that monitors your property tax payments for the lender.
Other Lender Fees
Administration Fee: Cost varies. Either this fee or an underwriting fee will typically be charged.
Appraisal Review Fee: $75–$150. An appraisal review is usually performed on higher-valued properties.
Document Preparation: Around $200. Although lenders can now prepare their own documents without paying document preparation firms, you may still be charged this fee.
Underwriting Fee: $300–$350. This is the cost associated with putting the loan together and completing the underwriting process.
Warehousing Fee: Cost varies. This fee is not seen as often anymore, but you may still be charged for it. It covers the cost of a “warehouse” line of credit.
Wire Transfer Fee: Cost varies. This is the cost of transferring funds from one account to another.
Items Required to Be Paid in Advance
Homeowner’s Insurance: Cost varies. You are usually required to pay the entire first year’s insurance premium at closing.
Mortgage Insurance: Cost varies. Some first-time homebuyer programs still require the first year’s mortgage insurance premium to be paid in advance.
Prepaid Interest: Cost varies. This is the interest that accumulates between the day of closing and the date your first mortgage payment is due, usually the first of the following month.
Up-Front Mortgage Insurance Premium: Cost varies. This is 2.25 percent of the loan balance and is normally added to the loan balance. It is charged on FHA purchases of single-family homes or planned unit developments.
VA Funding Fee: Cost varies. This fee is paid to the Veterans Administration for guaranteeing your loan.
Reserves Deposited With the Lender
Homeowner’s Insurance Impounds: Cost varies. Lenders are allowed to keep two months’ worth of reserves in your impound account, so you will need to deposit two months’ worth of premiums to establish the account.
Mortgage Insurance Impounds: Cost varies. As noted above, most lenders allow mortgage insurance to be paid monthly, but you may have to deposit two months’ worth of premiums into an impound account as a reserve.
Property Tax Impounds: Cost varies. The amount you need to deposit toward property taxes depends on when the taxes are due and how much is needed to establish your impound account.
Non-Recurring Closing Costs
Closing/Escrow/Settlement Fee: Cost varies.
Courier Fee: Cost varies. This is the charge for sending documents back and forth between the lender and borrower.
Home Inspection: Cost varies. This is an optional, but recommended, expense.
Home Warranty: Cost varies. Also optional, a home warranty generally covers major appliances and other items if they break down within a specified period. This cost is often paid by the seller.
Homeowner’s Association Transfer Fee: Cost varies. This is the fee charged to transfer the HOA membership from the seller to the buyer.
Loan Tie-In Fee: Cost varies. Usually charged by the closing agent, this fee covers services provided in connection with the lender.
Notary Fees: Around $40. This fee is charged to make document signatures legal.
Pest Inspection: Around $75. This inspection checks for pests and problems such as wood rot and water damage.
Recording Fees: $40–$75. These fees are charged to record documents with the county government recorder.
Sub-Escrow Fee: Cost varies. The title insurance company usually charges this fee for working with the closing agent.
Title Insurance: Cost varies. This insurance helps ensure that you have clear title to the property.
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