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Closing Cost

Closing costs are the expenses, other than the price of the property, that buyers and sellers need to pay to complete the real estate transaction.

The majority of the closing costs fall on the buyer, however the seller typically has few expenses to pay as well, such as the real estate broker commissions and depending on the state, transaction fees.
For properties being financed, the average closing cost will run between 2% and 5% of the mortgage amount, Properties being purchased without a mortgage will incur closing cost as well.

Property tax will take up a big chunk of the closing cost. Other cost may include home inspection fees, appraisal fees, surveys fees, loan application fees, credit report charges, mortgage broker fee , loan origination fees, loan discount points, prepaid interest, mortgage Insurance, title searches homeowner’s title insurance, lender’s title insurance, deed-recording fees, HOA fees, transfer fees, and attorney fees.

The law requires that lenders provide an estimate of the closing costs on the property. The Real Estate Settlement Procedures Act (RESPA), requires lenders provide a good faith estimate of the closing cost within three days of receiving a loan application from a borrower. Also, the lender should provide a closing disclosure statement outlining all closing fees at least three days prior to the closing as the closing cost estimate can often change from the initial estimate. All of the closing costs should be itemized on the loan estimate and closing disclosure.

Below is a list of common closing cost and a brief explanation of each.

Application Fee
A fee charged by a lender to process a mortgage application.

Attorney Fee
A fee charged by a real estate attorney to prepare and review home purchase agreements and contracts and represent buyers and sellers at the real estate closing or settlement.

Closing Fee
Also referred to as an "escrow fee," is the fee paid to the person, title company, escrow company or lawyer that handles the closing.

Courier Fee
A fee paid to a courier to expedite the transportation of documents or checks.

Credit Report Fee
A fee to obtain credit reports from the three main reporting bureaus showing the purchasers credit history. A lender includes the information contained in the credit report in determining whether or not to approve a loan and the amount of money it will loan.

Escrow Deposit
A lender may require a purchaser to deposit two months of property tax and mortgage insurance payments at the closing.

FHA Mortgage Insurance Premium
FHA loans require an up-front mortgage insurance premium (UPMIP) to be paid at closing unless rolled into the mortgage.

Flood Determination and Monitoring Fee
A fee for a certified flood inspector to determine whether the property is in a flood zone. A portion of the fee includes the ongoing monitoring of changes in the property’s flood status.

Homeowner’s Insurance
A fee paid for homeowner’s insurance

Home inspection
A fee paid to a profession home inspector to make sure the home is structurally sound. The inspection will also provide the buyer with incite regarding the condition of the house and problems with the structure and systems of the home.

Lender’s Title Insurance
A one-time, upfront fee paid to the title company protecting the lenders financial interest in the property should there be a dispute with regard to the ownership of the property, or a lien or defect arises that was not picked up in the title search.

Lead-Based Paint Inspection
A fee paid to a certified inspector to determine whether the property has hazardous, lead-based paint.

Points
Also referred to as discount points is an optional, up-front payment to a lender or mortgage company to reduce the interest rate on the loan. The more money (points) that is paid upfront, the lower the interest rate. One-point equals 1{1592b456bb397d7b1335e8cb7c8d388f609c79ce87b658be6f21701fbfca1d48} of the loan amount. Paying points makes more sense when interest rates are high. In a low-rate environment.

Owner’s Title Insurance
This policy protects the homeowner in the event someone else claims ownership of the home, or liens or defects in the title are discovered, that were not picked up when the title was searched.

Origination Fee
An administrative fee charged by the lender or mortgage company to process a mortgage application. Many lenders will not charge an origination fee opting instead to charge a higher interest rate to cover the cost of processing.

Pest Inspection
A fee generally paid to an exterminator to inspect the property for termites and other insects and to determine if the house has dry rot or other pest-related damage.

Prepaid Daily Interest Charges
This payment covers the interest on the mortgage that accrues from the date of closing until the date the first mortgage payment is due.

Private Mortgage Insurance (PMI)
Those who put down less than 20{1592b456bb397d7b1335e8cb7c8d388f609c79ce87b658be6f21701fbfca1d48} of the purchase price, and finance the remainder will generally be required by the lender to pay Private Mortgage Insurance (PMI) with the first month’s PMI payment due at closing.

Property Appraisal Fee
The fee paid to a professional property appraisal company to determine the home's fair market value used. Mortgage companies use the appraisal to calculate the loan-to-value (LTV) ratio.

Property Tax
There is usually a certain portion of property taxes that must be paid at each closing, often equal to six months of county property taxes.

Rate Lockin Fee
A fee charged by a lender or mortgage company for agreeing to a certain interest rate for a limited period of time, essentially locking in the interest rate.

Real estate commission
The commission fee paid to the real estate broker. The real estate commission is usually paid by the seller. This commission is usually a percentage of the selling price of the home.

Recording Fee
A fee charged by a municipality for the recording of public land records.

Survey Fee
A fee charged by a surveying company to survey the property to confirm the property lines and shared fences to check a property's boundaries.

Tax Monitoring and Tax Status Research Fees
A fee to check the status of property tax payments and to notify the lender of any issues with the property tax payments including late or failed payments.

Title Search Fee
The fee charged by title companies to review public property records for any ownership issues. The title company will search the deed records to make sure that there are no outstanding ownership disputes or liens on the property.

Transfer Tax
A tax imposed when title is transferred from a seller to the buyer or a tax imposed on a new mortgage loan.

Underwriting Fee
A fee charged by the lender for underwriting the loan. Underwriting is the process of reviewing and verifying the purchaser’s credit, financial information, income, and employment information for the final approval of the loan.

No-Closing-Cost Mortgage
It is possible to obtain a no-closing-cost mortgage and eliminating the buyer’s upfront closing fees. These types of mortgages may be helpful in the short term but will likely result in higher interest rates. The closing costs can also be rolled into the total amount mortgage, requiring the buyer to pay interest on the closing costs over time. While no-closing-cost mortgages may reduce the initial amount of money needed to acquire the property, there are long-term financial ramifications to these types of mortgages.