There are fees associated with the purchase of residential real estate which are called “closing costs”. This term is sometimes used incorrectly however because closing costs do not include all of the expenses in your transaction. You will have “closing costs” that you will pay to your bank if you are obtaining a mortgage, you have your down payment on the purchase, and you have what it called “pre-paids”. When you talk to your bank or credit union you are entitled to a Cost Statement of the closing costs associated with your loan within three days of an application and you are encouraged to shop for the best deal as different banks can charge different fess. Closing costs can be wrapped into the loan but this must be negotiated in your original offer so that it is clear to a seller what you are offering to pay them for their house and how much you are asking for these costs. Following is from the HUD website and taken from the RESPA form,
ITEMS PAYABLE IN CONNECTION WITH LOAN
Loan Origination Fee – this is the costs of the lender to process your loan. This can be a percentage of the loan amount. You can negotiate this fee and ask your lender if you can wrap this expense into the loan for a higher interest rate.
Points – this is an upfront charge paid to the lender to get a lower mortgage rate – the same as “buying the rate down”. When rates are as low as they are today however you don’t see much of this. 1% of the loan equals 1 point.
Appraisal – this is a one time fee for the bank to send in an appraiser to give an independent valuation of the property. This fee typically runs between $250-500 and can be requested at the time of the application once you decide which lender your will use Credit Report – one of the first things the bank will do is run a credit report. This report usually costs about $50.00 and will help the lender decide whether to give you a loan and what interest rate to charge you. The higher your credit score the lower the rateLender’s Mortgage Broker Fee – this is the upfront charge that a mortgage broker charges. Brokers can also earn a “rebate” from the lender which is not listed her Tax Related Service Fee – lender fee, usually small, for handling tax related matter Processing Fee – this is the charge for processing the loan – collecting the buyer’s application, running credit, collecting pay stubs, bank statements, ordering appraisal, title, etc
Underwriting Fee – this is the cost of the loan underwriter (approver Wire Transfer Fee – this is the cost of wiring the money around, which is usually done by escrow.
ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE Interest for days X $ per day -this is the prepaid interest for a mortgage loan which usually is from the date of closing to the end of the first month Mortgage Insurance Premium – this is the prepaid mortgage insurance premium, if needed. This is the insurance premium some lenders charge for loans with little equity Hazard Insurance Premium – this is used to record hazard insurance premiums that must be paid at settlement in order to have immediate insurance on the property. It is not used for insurance reserves that will go into escrow VA Funding Fee – this is the Veterans Administration funding fee, which is only applicable if the loan is through a VA program.
RESERVES DEPOSITED WITH LENDER ( also known as the Escrow) Hazard Insurance Premiums # months @ $ per month – his is any prepayment of future hazard insurance expens Mortgage Ins. Premium Reserves months @ $ per month School Tax months @ $ per month – this is any prepayment of future school tax expens Taxes and Assessment Reserves months @ $ per month – this is any prepayment of future tax expenses, such as property taxes Flood Insurance Reserves months @ $ per month months – this is any prepayment of future flood insurance expense Aggregate Accounting Adjustment – this is a credit to the buyer. By law, the lender is not allowed to collect more than the sum of initial payments for reserve items. The aggregate adjustment is the amount the lender must ‘credit’ the borrower at closing, so that they don’t collect more than the law allows.
TITLE CHARGE Closing or Escrow Fee – this is the cost of escrow. This is the service of a neutral party that actually handles the money between all the different parties in a real estate transaction, including: the lender, the buyer, the seller, the agents, notary, etc. This is often done by the “Title Company” – a related entity in the same office that provides title insuranc Document Preparation Fee – this is the charge for preparing the loan documents. Lenders often email the loan documents to the escrow company, which in turn prints them out and reviews them before signing. However, some title companies are owned by an attorney who will also draw certain legal documents for the buyer’s closing Notary Fees – this is the cost of the notary. This is to have all of the legal documents surrounding this transaction notarized. When closing inside the title company office, there is usually no charge for this Attorney Fees – any legal charges associated with clearing the title to the property Title Insurance – this is the cost of insuring the title of the property. If there is a question about title (who really owned the property), or if a judgment or lien was really paid off, after the transaction is done then this insurance protects the lender and owner from future problems.
GOVERNMENT RECORDING & TRANSFER CHARGES
- Recording Fees
This is the cost of updating relevant government records
- City/County Tax/Stamps
Unavoidable government charge
- State Tax/Stamps
Unavoidable government charge
- Electronic Recording Fee
Many counties now allow documents to be recorded electronically. This expedites the issuance of a title policy by several weeks. ADDITIONAL SETTLEMENT CHARGES This includes things like the survey, HOA fees, and repairs.
- Pest Inspection
This is the cost of the pest inspector. Their purpose is to document the state of the property that the lender is making the loan on.]