Closing Costs: What Are Closing Costs?
Whether you are refinancing your current home or are purchasing a new home or selling your existing home, there are closing costs. Closing costs are fees and costs related to finalizing the transfer of property or transfer of the mortgage loan and can be expensive. Home buyers need to be concerned not only with the down payment but also what the estimated closing costs will be. Home buyers who barely have enough funds for the down payment can still purchase a home and have either the sellers contribute towards the closing costs. If the sellers do not want to give the buyers a sellers concession towards a buyers closing costs, the home buyer can request the mortgage lender to cover the closing costs via a lender’s credit towards the borrower’s closing costs.
Breakdown Of Closing Costs
1. Abstract fees/charges
An abstract will be required. An abstract is somewhat of a biography of the biography where it states the ownership history of the subject property. Abstract can be updated from the existing abstract in some cases where the fees and cost of updating an abstract will be lower than ordering a new abstract. Abstract fees and costs are normally paid by the seller of the property.
2. Homeowners insurance
One year’s homeowners insurance needs to be paid upfront and it is one of the buyer’s closing costs. The mortgage lender will also require and additional two months of insurance payments to be held in escrow.
3. Down payment
The required down payment by the mortgage lender needs to be brought in via cashier’s check ( If under $50,000) or needs to be wired if the amount is over $50,000.
4. Points and Origination Fees
Any fees and costs that your mortgage lender charges you for the origination of your mortgage loan will be part of your closing costs. Some fees that your mortgage lender can charge you are origination fees, underwriting fees, or fees that is associated with you buying your mortgage rate down.
5. Appraisal and inspection fees
Appraisal, home inspection, termite inspection, and other inspection fees are part of the buyer’s closing costs. Some of these costs and fees are often paid outside closing or prior to closing.
6. Credit report and rapid rescore fees and charges
Your mortgage lender will run credit reports and sometimes rapid rescores while processing and underwriting your mortgage loan. These fees are collected at closing instead of upfront for most mortgage lenders.
6. Tax service costs and fees
Tax service fees are fees and costs associated when the mortgage lender hires a third party tax service firm to confirm that property taxes are in good standings or when the next installment of property taxes are due so the mortgage lender can escrow the upcoming property taxes.
7. Title Insurance fees and costs
The purpose for title insurance is to insure the property title against fraud and liens against the property. Title insurance fees are based on the mortgage loan amount and purchase price of the property. Title insurance is a mandatory requirement for all mortgage lenders. Title insurance premiums are paid for by the home buyers/borrowers.
8. Title examination costs and fees
A title examination fee may be charged to the home buyer/borrower. Title examination fees are normally charged for the title officer to review for any liens to the property, mortgages, defects, mechanics liens, and easements. Many title companies do not charge this fee and consider this service as part of the title insurance charges while others will charge title examination fees as a separate cost.
9. Deed preparation costs and fees
Deed preparation is comparable to a bill a sale or proof of the sale transaction. The deed preparation fees are normally paid for by the seller.
10. Deed tax fees charged by the state
Deed tax fees are costs normally paid by the seller. It is normally a set dollar amount per $1,000 of the sales price of the property.
11. Document preparation and recording fees
Recording fees are part of the closing costs and they are fees by the state’s County Recorder of Deeds Office to record the property deeds, notes, and mortgage documents in order to clear and do the title transfer.
12. Pre-paid interest
Pre-paid interest is the interest of the mortgage loan that is from closing date to the date of the borrower’s first mortgage payment date. The borrower needs to pay this at the time of closing and is part of the borrower’s closing costs.
13. Mortgage Insurance
Mortgage insurance is normally collected up front and is escrowed by the mortgage lender.
14. Registration tax
Depending on the state, states charge a mortgage registration tax which is a tax that is charged for getting a mortgage and it is normally a percentage of every $100 dollar amount recorded. The buyer is normally is responsible for this closing cost.
15. Property tax and insurance escrow
A mortgage escrow is set up by the mortgage lender for those who put less than 20% down payment which are an escrow account for taxes and homeowners insurance. Mortgage lenders normally require an advance of at least two months property tax and insurance payment up front at the time of closing.
16. Closing fees
The closing agent will charge a closing fee for transacting the real estate closing. The borrower of the mortgage loan pays the fee to the closing agent to close the loan and the seller will be charged a separate fee for the closing agent to do the transferring of ownership of the property to the buyer of the property.