Buyer’s Closing Costs
When buying a new home, there are several fees that need to be taken into account. Buyers need to be aware of these fees, as lenders will want to be sure the buyers have the funds available to close.
Closing costs of a home vary and can range from 2-5% of the home’s sale price. Your lender will be able to give you an estimate, when applying for your mortgage.
Other fees that may not be included are those charged by the title or escrow company.
A Closing Disclosure (CD) is required to be provided to a buyer 3 business days before the closing date of the mortgage. The CD will also include items such as monthly payments, loan fees, loan terms, and any other outstanding charges. A buyer can compare this to the estimate provided by the lender at the application time.
Mortgage Fees
Loan origination fee: The amount the lender charges for for processing the mortgage application. The fee varies, but typically runs around 1% of the mortgage. This fee may be negotiated into the rate of the mortgage.
VA funding fee: This only applies to a VA loan. It is a fee charged to the veteran to close the loan, and can be paid in cash or rolled into mortgage. This amount is based veteran status, down payment, and whether they have had a VA loan before.
Appraisal: A fee paid for a licensed appraiser to determine the value of the property.
Attorney fee: This fee only applies when using an attorney within the transaction.
Discount points: These can be used to adjust the mortgage interest rate, and are considered prepaid interest. A point is 1% of the mortgage.
Lender’s title insurance: This covers the lender and allows the lender to hold an enforceable lien from title claims on the house. It is usually issued with an owner’s title policy and is priced separately at closing.
Mortgage insurance: For most loans in excess of 80% of loan to value (LTV), they will require mortgage insurance to protect the lender from loss if the property in the event the property is foreclosed. VA loans do not have this requirement. There are 2 parts for FHA. The 1st is a charge of 1.75% of loan amount. The 2nd is a monthly amount which is added to the payment. Conventional loans typically collect the 1st month’s premium in advance, while subsequent amounts are rolled into the mortgage payment.
Recording fees: These are fees charged by the closing company for filing legal documents with the municipal or county recorders. Theses documents include the mortgage and the deed.
Survey fees: This is not a typical fee in an ordinary real estate transaction. This fee is required by a lender, to verify property lines, shared fences and driveways, and to identify any other encumbrances.
Underwriting fee: This fee covers the lender’s research and determination for the mortgage package to meet the lender’s requirements.
Mortgage Escrow Fees
Property taxes: Lenders may require 2-3 months of taxes be held in escrow. These are typically paid 60-90 by the lender before they are due. They are prorated from the date of closing.
Property insurance: Insurance is pre-paid in advance, with the annual premium is due at closing. The lender may also require 1 additional month, so that the premium may be paid 1 month prior to renewal.
Flood insurance: This fee only applies to lenders that require flood insurance on a home based on the assessed location in a flood zone or proximity to a flood zone.
Home Purchase Fees
Settlement fee: Upon the closing of the property, this fee is paid to the title, escrow company, or attorney that closes the transaction.
HOA Fee: This only applies to properties within a Home Owner Association (HOA). HOA fees are usually prepaid and are prorated at closing.
Owner’s Title insurance: This insures the buyer, clear and marketable title from the seller. It serves the purpose of protecting the new owners’ interests if they are challenged. It may not be required, but is recommended.
Pest inspection: This fee may not pertain in most transactions, but is performed by a licensed exterminator.
Property inspection: After the purchase agreement is signed, a professional home inspection is completed to determine the condition of the property.
Title search: This fee covers the title search of a property. It is a separate fee charged in addition to the premium for the title insurance.
Transfer taxes: Taxes to be collected by a government entity.
For more details, you can download a Closing Disclosure Explainer from the Consumer Financial Protection Bureau website.
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