Closing Costs

Closing costs are expenses, over and above the price of the property that buyers and sellers incur when they transfer ownership of a property. Closing costs vary depending on price, location, and other factors.

Closing costs and who pays them vary by location and may be open for negotiation between the buyer and seller. The agreement that you and the seller reach should be specified in the sales contract.

Depending on your situation, these are the types of costs usually paid at closing.

Lender’s fees

• Origination fee - A fee to help cover the operational costs of processing the loan. It may be expressed as a percentage of the loan. You may choose a higher interest rate and not pay an origination fee.
• Discount points - A dollar amount paid to a lender, which may reduce the interest rate of your loan. Each point equals one percent of the mortgage amount.
• Appraisal fee - A fee for an independent written opinion that identifies the property's market value.
• Credit report - A document summarizing your history of repaying debts. A credit report is required for all mortgage loans.
• Flood certification fee - A fee charged to obtain the required government document used to determine whether the subject property is located in a flood plain.
• Underwriting fee - A fee charged to review and approve the mortgage application.

Items paid in advance

• Prepaid interest - Interest is the cost of borrowing money from your lender. You will probably have to pay the interest on the mortgage from the closing date to the beginning of the period covered by the first monthly mortgage payment.
  
• Hazard insurance - This is the annual premium for your homeowner's insurance.

Reserves deposited with lender

• Hazard insurance - In addition to the annual premium collected at closing, the lender may collect funds as a buffer for any possible increases in premium.
• Taxes and assessment reserves - The lender usually collects funds as a buffer for any possible increases in tax rates or property values.

Title charges

• Closing fee - Fees collected by the closing agent or attorney handling the closing. The funds are collected and paid as part of the transaction.
• Title insurance - Provides insurance to buyers of real estate that they have clear title to the property they are buying, subject to any exceptions contained in the policy.

Government recording and transfer charges

• Recording fees and transfer taxes - Charged by most states for recording the purchase documents and transferring ownership of the property. They are usually calculated as a percentage of the sales price.

Additional charges

• Survey - Covers a check of the boundary lines of the property and the location of permanent structures by a surveyor and a drawing outlining the exact dimensions of the property.
• Pest inspection - Required as a condition of the loan.
• Private mortgage insurance (PMI) - Additional insurance written by a private company protecting us from mortgage default. It is generally required when you buy a house with less than a 20% down payment.
  (Note: No PMI is required on our 6/2 Adjustable Rate Mortgage.)
• Mortgage insurance premium (MIP) – Additional insurance for FHA loans. It is generally required regardless of down payment amount.

Please contact us if you have any questions or if we can help you in any way.

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