Closing costs are fees associated with your home purchase and home loan at the closing of a real estate transaction. The closing takes place when the title of the property is transferred to the buyer. Closing costs are incurred by either the buyer or seller. Although the breakdown of closing costs is important to understand, many loan programs allow you to finance or have the seller pay your closing costs. Remember, when a bank claims to have a no closing cost program, typically the bank pays the costs for you in exchange for a higher interest rate. Make sure to compare programs that include paying for your closing costs and no closing cost programs so you understand the differences.
What Types of fees can you expect?
Closing costs vary widely based on where you live, the property you buy, and the type of loan you choose. Here is a list of fees that may be included in closing. The list is inclusive of fees you may see, but you may not be responsible for paying.
- Application Fee: Bank of England Mortgage Plattsburgh does not charge an application fee. The application fee covers the cost for the lender to process your application. Before submitting an application, ask your lender what this fee covers. It can often include things like a credit check for your credit score or appraisal as well. Not all lenders charge an application fee, and it can often be negotiated.
- Appraisal: This is paid to the appraisal company to confirm the fair market value of the home. The appraisal is conducted by a third party.
- Attorney Fee: This pays for an attorney to review the closing documents on behalf of the buyer or the lender. You have a right to choose which attorney will represent you. In New York an attorney is required to close a loan.
- Closing Fee or Escrow Fee: This is paid to the title company, escrow company or attorney for conducting the closing. The title company or escrow oversees the closing as an independent party in your home purchase. Some states require a real estate attorney be present at every closing.
- Courier Fee: This covers the cost of transporting documents to complete the loan transaction as quickly as possible. While this fee is common, depending on the attorney you choose, it may or may not be charged.
- Credit Report: A Tri-merge credit report is pulled to get your credit history and score. Your credit score plays a big role in determining the interest rate you’ll get on your loan.
- Escrow Deposit for Property Taxes & Mortgage Insurance: Often you are asked to put down two months of property tax and mortgage insurance payments at closing. This money builds a buffer so that the bank can pay all future tax bills out of you escrow account.
- FHA Up-Front Mortgage Insurance Premium (UPMIP): If you have an FHA loan, you’ll be required to pay the UPMIP. You are also able to roll this into the cost of the loan if you prefer. Most clients choose to finance the MIP.
- Flood Determinationor Life of Loan Coverage: This is paid to a third party to determine if the property is located in a flood zone. If the property is found to be located within a flood zone, you will need to buy flood insurance. The insurance, of course, is paid separately.
- Home Inspection: You will likely get your own home inspection to verify the condition of a property and to check for home repairs that may be needed before closing.
- Home Owners Association Transfer Fees: If the property has homeowners association fees, the Seller will pay for this transfer which will show that the dues are paid current, what the dues are, a copy of the association financial statements, minutes and notices. The buyer should review these documents to determine if the Association has enough reserves in place to avert future special assessments, check to see if there are special assessments, legal action, or any other items that might be of concern. Also included will be Association by-laws, rules and regulations and CC & Rs.
- Homeowners’ Insurance: This covers possible damages to your home. Your first year’s insurance is often paid at closing but you can also pay this prior to closing of you choose.
- Lender’s Policy Title Insurance: This is insurance to assure the lender that you own the home and the lender’s mortgage is a valid lien, and it protects the lender if there is a problem with the title. Similar to the title search, but always a separate line item.
- Lead-Based Paint Inspection:Covers the cost of evaluating lead-based paint risk. This is not always required. Only if lead paint is suspected after the inspection will this be required.
- Loan Discount Points:“Points” are prepaid interest. One point is one percent of your loan amount. This is a lump sum payment that lowers your monthly payment for the life of your loan. You are not required to pay points unless you choose a lower interest rate that requires points to be paid.
- Owner’s Policy Title Insurance: This is an insurance policy that protects you in the event someone challenges your ownership of the home. It is optional.
- Administration Fee: This covers the lender’s administrative costs. It’s usually about $995 but you can sometimes find mortgage companies that charge higher amounts.
- Prepaid Interest:Most lenders will ask you to prepay any interest that will accrue between closing and the date of your first mortgage payment.
- Private Mortgage Insurance (PMI): If you’re making a down payment that’s less than 20% of the home’s purchase price and obtaining a conventional loan, chances are you’ll be required to pay PMI. If so, you may need to pay the first month’s PMI payment at closing.
- Property Tax: Typically, lenders will want any taxes due within 60 days of purchase by the loan servicer to be paid at closing.
- Recording Fees: A fee charged by your local recording office, usually city or county, for the recording of public land records.
- Survey Fee: This fee goes to a survey company to verify all property lines and things like shared fences on the property. This is not required in all states and in most cases a survey has already been completed and recorded.
- Title Company Title Search or Exam Fee: This fee is paid to the title company for doing a thorough search of the property’s records. The title company researches the deed to your new home, ensuring that no one else has a claim to the property.
- Transfer Taxes: This is the tax paid when the title passes from seller to buyer. This is paid to the town, state, or municipality in which you reside.
- VA Funding Fee: If you have a VA loan, you may be required to pay a VA funding fee at closing (or you can roll this fee into the cost of the loan if you prefer). This is a percentage of the loan amount that the VA assesses to fund the VA home loan program, however some borrowers are exempt from this fee. The percentage depends on your type of service and the amount of your down payment.
This list may not include all closing cast as each case is different. Talk to your mortgage professional at (518) 324-5544 to learn which fees apply to you.