What's Included in Closing Costs?
Closing costs typically average approximately 5-10% of the house price. This percentage may vary, depending on where you live. In general, your closing costs will include the following items:
Lender Fee - Typically paid by the seller to cover the lender's expenses for processing the loan.
Title Insurance - Based on the sale price of the home. The percentage of sale price varies by title insurance company. It is the fee charged for property title inspection and insurance policy against policy defects. This will require coverage for both the lender and the buyer's guaranties.
Title Search Fee - Fee charged for examining the public record, laws, and the Registry of Deeds to ensure that no individual other than the seller can legally claim ownership of the property.
State Mortgage Taxes - Fee charged by the state as a tax on the sale of the home.
Settlement Charge - Fee charged by the closing company to cover attorney fees and other expenses incurred.
Escrow - Items for which the lenders require escrow accounts, as they are not monthly fees. Companies usually require two months in escrow at closing. Federal, and in some cases, state law dictate the amount of funds that must be held in your escrow account at all times. Your realtor or lender can help ascertain these amounts. Items that typically require escrow accounts include:
Hazard Insurance - Fee charged for insuring the property against property loss or damage.
Property Tax - Fee charged for the property that is based on the assessed value of the property. The tax rate can vary by county.
Mortgage Insurance - Fee required by lenders to insure against the risk of default by the borrowers. This is usually required if the down payment is less than 20% of the mortgage amount.
Settlement or Closing Fee - Fee charged to cover the services of the settlement agent that handles all the payment transfers during the closing.
Attorney's Fee - Fee charged if an attorney performs the functions of a settlement agent. In some states, it is required that an attorney be involved with the closing process.
Flood Insurance Fee - Fee charged to determine if the property is in a Special Flood Hazard Area.
Home Warranty Fee - Fee charged by an insurance company for a warranty that covers repairs or replaces defective items in the home.
Home Inspection Fee - Fee charged for professional inspection of the house to identify any problems associated with the home.
Survey Fee - Fee charged for measuring the property to document location, dimensions, and any construction improvements of the property.
Notary Fee - Fee charged to cover cost of a licensed notary individual authorized by the state to certify the identity of the individuals signing the documents.
Recording Fee - Fee charged for filing closing documents such as your deed of trust at the county recorder's office.
Interest - Prorated fee charged daily for mortgage interest due from the date of funding until the time of the first monthly mortgage payment.
Lender Fees/Charges
Discount Points - Finance charges calculated by the lender at closing. Each point is equal to 1% of the loan amount which is paid at closing. This fee is sometimes charged by the lender to reduce the interest rate of the mortgage, also referred to as a "buydown". One discount point typically reduces the loan rate by an eighth of a percentage point. For example, if the interest rate is 7.5%, you may end up paying 7.25% over the life of the loan and pay the difference in additional up-front costs equivalent to 2 discount points. Discount points are based on the total loan amount and can vary by lender and by lender's loan products.
Loan Origination Fee - Based on loan amount; typically this fee is 1% of the loan amount.
Mortgage Interest - The interest on the loan amount from the date of closing to the last day of the month.
Credit Report Fee - Fee charged by lender to request a credit report on the borrower. This fee varies by location and reporting agencies.
Appraisal Fee - Fee charged for a written evaluation of the fair market price for the property. This fee varies by lender.
Tax Service Fee - Fee charged by the lender to cover the cost of hiring a tax service agency. A tax service agency monitors the property tax payments for the loan and informs the lender if they are not paid in full and on time. If property taxes are included in the monthly payment as part of the escrow account, the tax service will obtain the tax bills for payment by the lender.
Document Preparation Fee - Fee charged to cover the cost of preparing the loan documents.
