A common question I get from buyers and sellers as the escrow is moving towards closing is about the fees that they see on the Estimated Closing Costs form from the title company. Here are a few of the items that you will see on the closing costs documents.
Origination: The fee that the mortgage broker and lender charge to the borrower for making the loan. This charge covers administrative services including taking and processing the loan application and underwriting and funding the loan.
Points:. Points are charges as a percentage of the loan. 1 point is equivalent to 1 percent of the loan amount. For example 1 point of a $500,000.00 loan would be $5000.00. The reason for paying points on a loan is to get the interest rate lowered. If you decide to pay no points on your loan origination you will have slightly higher interest rate and a slightly higher loan payment over the life of your loan.
Underwriting: This fee is for the research the lender does to qualify your loan approval.
Appraisal: An appraiser will make an estimate of value on the home you’re purchasing to verify the price and the loan amount to approve.
Credit Report: The lender will run a credit report on your credit history to determine your ability to repay the loan and to determine your interest rate. The higher your credit score the better the rate you can procure.
Survey: In some instances the lender will require a survey of the land. Knowing the lots boundaries protects the buyer form possible disputes later on. This can be a seller charge as well.
Property Inspection: The buyer typically pays to have the property inspected by a qualified property inspector, who issues a report on the condition of the workings of the home. This fee can be paid at the time of the inspection or it can be paid in the escrow. If it is being paid through the escrow this charge will appear on your closing statement.
Termite Inspection: Like the property inspection buyers also get a termite inspection which inspects the home for termites and other bugs and also determines if there are any problems with the wood. Wood rot can result from water intrusion. Again this fee can be paid at time of inspection or included on the closing statement.
Title and Escrow
Title Search: A search of the public records to determine if there will be clear title for the transfer of ownership.
Document Preparation: This is the fee for the cost to prepare the final legal document for transfer of ownership. The mortgage, note and deed of trust.
Notary: A licensed notary public will attend the signing to verify identities and swear to the fact that the people named in the documents are indeed the people who signed them.
City and County Fees
Recording Fees: This fee covers the legal recording of the new deed and mortgage with the county.
Property taxes: Typically about 6 months of property taxes are paid up front.
Transfer Tax: This tax can be made in some areas and can be a hefty amount. The tax is set by the state and/or local government.
Homeowner’s insurance: Homeowners insurance protects your home and the lenders interest from loss due to fire and other natural hazards. Typically the lender requires a prepaid 1 year premium be paid at closing.
Mortgage Insurance: The lender may require you to pay a 1 year premium or a lump sum covering the life of the loan in advance at closing to cover the mortgage insurance.
Home Warranty: One year premium to cover the appliances and major systems of the home. These policies are renewable year over year at the buyers expense for those who wish to keep the coverage.
Real Estate Commissions: The seller almost always pays the broker fees for the sale of the home. Usually the commission is a percentage of the selling price and is agreed upon in the listing agreement with the listing agent. The commission is paid to the listing agent and the buyers agent.
Notary: Same as buyer side but to verify sellers.
Inspections: Sometimes the seller will get pre-listing inspections.
Prorated property taxes and HOA fees: HOA fees, property taxes and mortgage interest will be prorated as of the close of escrow date.
Title Insurance: Buyers usually pay this but sometimes it can be negotiated to be a seller expense. Title insurance protects the buyer and the lender from claims against the property.