There is no shock that all of these people involved in the closing of your house will need to get paid. This is where the closing costs come into play. There are certain fees involved in closing costs that are required, which some may not be necessary for your closing. Depending on how inspection goes, and any repairs that might need to be made some sellers are happy to negotiate the closing costs. They may offer to pay for some or all of the closing fees in order to solidify the sale. The list of fees can quickly add up, it will truly be based on the cost of the home. Buyer’s closing costs can be anywhere from 3-5% of the sale price. The seller will pay fewer fees but they are most times larger than the fees the buyer will be paying. Most times the seller will pay the commission of both buyer’s and seller’s agents which will typically be 3% each.
- Loan Origination Fee: An origination fee is an upfront fee charged by a lender for processing a new loan application. It’s compensation for putting the loan in place. Origination fees are quoted as a percentage of the total loan, and they’re generally between 0.5% and 1% on mortgage loans in the United States.
- Loan Discount: Mortgage points, also known as discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called “buying down the rate,” which can lower your monthly mortgage payments. One point costs 1 percent of your mortgage amount (or $1,000 for every $100,000).
- Application Fee: A fee charged to a potential borrower for processing an application for a loan. Loan application fees are not always required for all types of loans and are intended to pay for the costs of the process of loan approval. They can range from $300-$500.
- Appraisal Fee: This will typically be around $300. This fee is used for an independent appraiser to look at the home to ensure that it is worth the money they are loaning for you to purchase it.
- Credit Report Fee: This fee is to have your credit report run to be sure you are eligible for this purchase. This can cost around $25.
- Lender Inspection Fee: This is applicable if you are purchasing a new home or one that is under construction and can cost around $100.
- Mortgage Insurance Application Fee: If the down payment is less than 20% of the purchase price, you will be required to carry Private Mortgage Insurance (PMI) to protect the lender if you default on your loan.
- Mortgage Insurance Premium: Some lenders may require borrowers to pay the first year’s mortgage insurance premium up front. Other’s will ask for a large sum insurance premium payment at closing that covers the life of your loan.
- Prepaid Interest: Lenders may ask you to prepay any interest that can accrue between the date of closing and the first mortgage payment.
- Reserve Account Funds: Also known as “prepaids”, monthly mortgage payments will typically include a pro-rated amount to cover payments for property taxes, assessments, homeowners insurance and sometimes mortgage insurance. This money will be held in an “escrow” or “reserve” account by the lender who will make the payments for you. At the closing, the lender may ask you to pay two months of these payments.
- Hazard Insurance Premiums: A full years worth of premiums to protect the lender from any natural disasters that can affect your home.
- Lender’s Attorney Fee: If there is an attorney present for the loan transaction, the buyer will pay them this fee of $400. Some buyers are able to negotiate this fee.
- Title Search: This is to ensure there are no unpaid mortgages or tax liens on your property. Most states this can be done by a title insurance company. Few states will require an attorney to conduct this search. This fee can range from $200-$400
- Title Insurance Fees: This is something that will protect you by guaranteeing that the title of your property is clear. Costs for this can average 0.5%-1% of the purchase price.
- Notary Fees: A licensed notary will serve as a witness that the documents were signed by you. If the close takes place at the title or escrow office this fee may be waived. This fee will be set by the state you live in.
- Attorney Fees: Some states require an attorney to overlook the closing. Most times it will be up to the buyer to find their own attorney. These fees can vary. Some may charge an hourly rate, while others may have a fixed rate. This can range anywhere from $150-$500.
Government and Transfer Costs:
This will vary based on which state you will be living in. The terms of who will pay which fees will be determined in the contract.
- Recording Fees: A fee charged by a government agency for registering or recording a real estate purchase or sale. On average it will cost $100 to get the sale in the public record.
- Transfer Taxes: A tax on the passing of title to property from one individual to another. These can vary based on location, but can be significant where they are collected.
These will vary based on your contract and are not always involved in each close.
- Survey: Some lenders require a survey to establish property lines, this can cost around $1,000.
- Courier Fee: This will only be charged if there is a courier that picks up and delivers any documents.
- Lead-Based Paint Inspection: This will cover the cost to have the home inspected for lead-based paint.
- Pest Inspection: Some locations are require a pest inspection to be sure there are no termites or other pests. This fee will be paid by the seller.
- Documentation Preparation Fee: This fee is often negotiated and is what will cover the cost to prepare all closing documents. It is rarely necessary. This can cost about $200.