You've found your dream home, the seller has accepted your offer, your loan has been

approved and you're eager to move into your new home. But before you get the key,

there's one more step--the closing.

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Also called the settlement, the closing is the process of passing ownership of property

from seller to buyer. And it can be bewildering. As a buyer, you will sign what seems

like endless piles of documents and will have to present a sizeable check for the down

payment and various closing costs. It's the fees associated with the closing that many

times remains a mystery to many buyers who may simply hand over thousands of

dollars without really knowing what they are paying for.

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As a responsible buyer, you should be familiar with these costs that are both

mortgage-related and government imposed. Although many of the fees may vary

by locality, here are some common fees:

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Appraisal Fee: This fee pays for the appraisal of the property.  Typically you pay this during the processing of your loan.

 

Credit Report Fee: This fee covers the cost of the credit report requested by the lender. This fee is paid upfront at loan application or at pre- approval process. 

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Loan Origination Fee: This fee covers the lender's loan-processing costs. The fee is varies but sometimes is  one percent of the total mortgage.

 

Loan Discount:  Buyers used to pay discount points and for each point you would lower your interest rate. The cost of the point is equal to one percent of the loan amount.  This is not seen much anymore as it is hardly worth it as interest rates are so low. 

 

Title Insurance Fees: These fees generally include costs for the title search, title examination, title insurance, document preparation and other miscellaneous title fees. Note:  This does not include Owners Title Insurance - that is a separate fee and it is a one time fee paid by the buyer at closing. Covers the buyer for all time. 

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PMI Premium: If you buy a home with a low down payment, a lender usually requires that you pay a fee for mortgage insurance. This fee protects the lender against loss due to foreclosure. Once a new owner has 20 percent equity in their home, however, he or she can normally apply to eliminate this insurance.  Also in the event that the value of your home increases dramatically you may be able to have an appraisal done and have this fee removed if lender allows. Always check with your lender to see what they recommend. 

 

Prepaid Interest Fee: This fee covers the interest payment from the date you purchases the home to the date of your first mortgage payment. Generally, if you buy a home early in the month, the prepaid interest fee will be substantially higher than if you buy it towards the end of the month.

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Escrow Accounts: In locations where escrow accounts are common, a mortgage lender will usually start an account that holds funds for future annual property taxes and home insurance. At least one year advance plus two months worth of homeowner's insurance premium will be collected. In addition, taxes equal approximately to two months in excess of the number of months that have elapsed in the year are paid at closing. (If six months have passed, eight months of taxes will be collected.)   Note:  At closing the seller will be reimbursing your for taxes for the months he/she has lived in the property so even though the escrow numbers may seem high you will have some credits when taxes are prorated which is standard language in our contracts. 

 

Recording Fees and transfer taxes: This expense is charged by most states for recording the purchase documents and transferring ownership of the property. For example if the price of your home is $200,000 the transfer fee with be $200.00.  Recording fees are minimal - that fee is paid to record your deed and mortgage with the county clerks office.

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At loan application you will be given a good faith estimate of all costs and then 3 days prior to closing all buyers must receive a full disclosure of costs. So you will know exactly how much to bring to closing once you receive that form. You will actually be signing that you have received and reviewed the disclosure forms.  Always ask  questions if you do not understand the form. Be sure to consult with your realtor to make sure the costs are in line with the contract terms.