Over the last several years, many things have changed in real estateReal Estate is land and anything permanently attached to it, such as buildings and improvements. – and not for the better. The costs to purchase a home, especially closing costs, have gone up. So be prepared to pay when the time comes to close on your new home. If money is tight, you’ll need to plan for these costs as not only have traditional closing costs skyrocketed, but there are many other new fees you’ll have to pay.
In addition to your mortgageA Mortgage is a document granting a lien on a home in exchange for financing granted by a lender. The mortgage is the means by which the lender secures the loan and has the ability to foreclose on the home. lenderA Lender is a person, company, corporation, or entity that lends money for the purchase of real estate.’s fees, other common closing costs include may include titleTitle refers to the ownershipOwnership is the absolute right to use, enjoy, and dispose of property. You own it! of a particular piece of property. insuranceTitle Insurance is insurance that protects the lender and the property owner against losses arising from undisclosed defects or problems with the title to property. fees, recordingRecording is the process of filing documents at a specific government office. Upon such recording, the document becomes part of the public record. fees, inspection fees, city, county and state transfer taxes.
Here’s a detailed look at the many home buyer closing costs you might see and have to pay when you buy a home. Remember, not every home buyer closing costs listed here will apply to your deal and the fees and closing costs you pay may be higher or lower than the range I’ve provided depending on where you live and the particular home you’re about to purchase. The custom for paying some of these fees vary from state to state and changes even within a state. You’ll need to make sure you’re on the lookout for these closing costs and fees, make sure that they legitimate and that they apply to your deal. It’s easy to wind up paying certain fees if you don’t realize (and no one tells you) that the custom in your area may be to have the seller pay those expenses.
Home Buyer Closing Costs and Fees
1. Lender’s points and loanA Loan is an amount of money that is lent to a borrower, who agrees to repay it plus interestInterest is money charged for the use of borrowed funds. Usually expressed as an interest rate, it is the percentage of the total loan charged annually for the use of the funds.. origination fees. These points and loan origination fees usually run 0 to 3 percent of the loan, or more. A pointA Point is one percent of a loan amount. is one percent of the loan amount. If you see a point charged to you, it should be because you’re getting a lower interest rate. Lenders will typically charge more points in exchange for giving you a lower interest rate. Due to the financial crisis, some additional fees – usually in the form of points – are being charged to borrowers for purchasing condominiums and certain other properties that have had high foreclosureForeclosure is the legal action taken to extinguish a home owner's right and interest in a property, so that the property can be sold in a foreclosure sale to satisfy a debt. rates in the past. Unfortunately, these new loan origination fees won’t decrease your interest rate and will just add to the fees to close on your purchase.
When shopping around with different lenders for mortgages, you need to make sure you’re shopping for the same mortgage product. Lenders don’t make that easy. If you are shopping for a 30 year fixed rate loan with one lender, you can shop for that same loan with another lender and then compare points and loan origination fees. But it gets more difficult when you shop for an adjustable rate loan (ARM). A 5 year ARM loan will have a fixed interest rate for the first 5 years and then in the 6th year the interest rate on the loan will generally adjust yearly. But with that adjustment comes the finer points of your loan: the loan interest rate may be tied to the US Treasury Rate or LIBOR (the London Interbank Offer Rate); the adjustment may be limited to 2 percentage points at the end of the 5th year or can increase up to 6 percentage points; and, the loan interest rate can increase when it does increase at different levels depending on whether the lender ties the adjustment to either of the US Treasury Rate or LIBOR but different lenders will add anywhere between 1.75 percent to 3.25 percent to that rate.
2. Loan Processing Fees. Many lenders charge a loan processing fee. This fee can range from $200 to $800 and is in place to compensate the lender for processing of your loan. You may not like the fee, but more and more lenders are adding it as part of their loan charges.
3. Loan applicationYour Application is a series of documents you must fill out when you apply for a home loan, or insurance policies. feeAn Application Fee is a one-time fee charged by a company for processing your application for a loan. For a home loan, the application fee is sometimes applied toward certain costs, including the appraisalAn Appraisal is the opinion of an appraiser, who estimates the value of a home at a specific point in time for the purpose of financing or refinancing a home. and credit report.. The loan application fee is the fee to get the lender started on your loan application. Frequently the fee is applied towards other charges the lender will incur in processing your loan. At times it covers the appraisal and the credit report with any excess payments applied to other lender fees. Typically the loan application fee runs between $0 to $500.
4. Lender’s credit report. Expect to pay $10 to $100 or more for each credit report pulled. While the pricing for credit reports has come way down, some lenders still charge a rather high amount for pulling your credit reports. Some credit reports cost lenders less than $10 to pull, while others might be compiled credit reports that cost for $50 or more. If there are two of you on the loan borrowing money, you can expect the fee to be higher. In some cases, lenders will pull an updated credit report on you right before the closing to make sure your credit history has not deteriorated. If you and your spouse or partner are both named on the loan, and the lender pulls two sets of credit reports on each of you, your credit report cost could total as much as $350 to $400.
5. Lender’s underwriting fee. This lender underwriting fee can run between $75 to $600, and it is the fee the lender charges to finalize the loan by giving it the final review in its underwriting department. Not all lenders charge an underwriting fee but many do. Many lenders may be unable to explain the different between this fee and a loan processing fee to you, but what happens in the real world is that many of the fees charged by lenders are billed simply to compensate the lender and add to their bottom line.
6. Lender’s document preparation fee. A fee for preparing the documentation needed in the closing, it can cost $50 to $250, or more. In unbundling their fees, lenders will try to collect on the cost to prepare the loan documents for your loan. In some cases, these fees are paid to third party loan document preparation companies.
7. Lender’s appraisal fee. The lender will hire an appraiser to determine whether your property is worth what you’re paying for it. This will cost $225 to $750, or more, depending on the value of the property. For some high-priced properties, lenders will always require two appraisals. When that happens, the fee usually doubles, because the lender typically hires two different appraisers.
8. Prepaid interestPrepaid Interest is interest paid at closing for the number of days left in the month after closing. For example, if you close on the 15th, you would prepay the interest for the 15th through the end of the month. on the loan. The interest due on your loan is paid per day until the end of the month in which the closing occurs, so the cost is depends on how much money you’re borrowing and on what day of the month you choose to close the transaction. If you choose to close on the first couple of days of a calendar month, you may to come up with a higher amount of prepaid interest because you’re covering all of the days in the month starting on your closing date through the last day of the month. If you close on the last day of the month, you’ll only need one day’s worth of prepaid interest in cash at closing.
9. Lender’s insurance escrow. The lender expects that your home will be insured at all times. If there is a total loss to the home, the lender wants to make sure that there is a homeowners insurance policy in place to pay off the loan or – in some cases, with the lender’s permission – there is enough money on hand to rebuild the home. The lender always wants to make sure that the home — their collateral for the loan — isn’t going to go up in smoke. At closing the lender will require the homeowners insurance policy to be paid in full for at least one year and they will want to have two months’ cost of the annual premium on hand up front to make sure that they have enough money collected on a monthly basis during the term of the loan to pay the insurance premium on a yearly basis. If the policy costs $1,200 per year, you’ll need to come up with the $1,200 for the cost of the insurance premium at closing, unless you paid for the insurance policy before the closing and gave proof of that payment to the lender. You will also need to give the lender an additional $200 to put into the escrow for future homeowners insurance policy premiums that will come due.
10. Lender’s insurance escrow for condominium owners. In a new change since the housing crisis, lenders are also requiring that condominium buyers own a homeowners insurance policy that includes contents coverage. Just like the homeowners insurance policy for a single-family house, your lender will require you to buy your condominium insurance policy prior to the closing or pay for the policy at the closing. You’ll also have to escrow funds for the ongoing insurance premiums with the lender. Here’s something to think about: Ask if the lender will limit its requirement to be added as an additional insured to the policy only for the condominium building items. That is to say, if your condo kitchen is damaged by fire, the insurance company would make out a check to both you and your lender. But if you lose a piece of jewelry, the lender should not be part of that coverage. Your insurance agentAn Agent is an individual who acts on behalf of a consumer. A real estate agent represents a buyer or a seller in the purchase or sale of a home. Licensed by the state, a real estate agent must work for a broker or a brokerage firm. An insurance agent helps a consumer purchase an insurance policy. Insurance agents are also licensed by the state. should be able to work out the details with your lender.
11. Lender’s tax escrow. If you have a tax escrow, you’ll need to come up with enough cash at closing to make sure that your lender has sufficient funds on hand when the next tax bill comes out. For example, if your annual real estate taxes are about $1,200, and the next tax bill for the first half of your tax bill is due one month after the closing, the lender will want to have the amount that will be due ($600) plus two months’ reserveThe Reserve is the amount of money set aside by a condo, co-op, or homeowners' association for future capital improvements. on hand, or $800. The amount the lender will require in escrow will also depend on the locationLocation is where a property is geographically situated. "Location, location, location" is a broker's maxim that states that where the property is located is its most important feature, because you can change everything about a house, except its location. of the home. In some parts of the country, winter taxes are higher than summer taxes. In other parts, real estate taxes are paid at irregular intervals and each of these differences will impact the amount the lender will require for a real estate tax escrow.
12. Lender’s tax escrow service fee. This $40 to $125 fee is paid to the lender as a one-time fee to have a company set up the annual monitoring and payment of your real estate taxes.
13. Title insurance cost for the lender’s policy. Expect to pay $150 to $1,000 or more, based on the dollar amount of the house you purchase. In some parts of the country, the seller picks up most or all of the cost of title insurance for the owner’s title insurance policy and the lender’s title insurance policy can be piggy backed onto that policy. But if you are buying in a state in which the buyer pays for both the owner’s title insurance policy and the lender’s title insurance policy, the amount you pay can be substantial. Some states have title insurance rates set by the state and those fees are non-negotiable. In other states, the fees are negotiable. You would be wise to determine whether you can negotiate the rates with the title insurance company. For comparison purposes and to educate yourself further on title insurance costs, check out Closing.com.
14. Title insurance cost for the buyer’s policy. If you choose to buy a buyer’s policy, and I absolutely think you should, the cost will run $150 to $1,000 or more, depending on the price of the home. If you only buy a lender’s title policy, and someone makes a title claim to the property and you lose the house, only the lender will get a check. You need to buy a separate owner’s policy so that you will be fully compensated for the loss of the property in the event someone else has a successful title claim. (ThinkGlink.com has dozens of stories and videos about title insurance. Learn more about title insurance at our Title Insurance topic page.)
15. Special endorsements to the lender’s or owner’s title insurance policy. These can cost $150 each, or more, depending on the type of endorsementAn Endorsement is an amendment to an insurance policy, usually by means of a rider. and the fee schedule for these endorsements in your state. Depending on the type of property you are purchasing, the lender can require that you add special endorsements to the title, such as an environmental lienA Lien is an encumbrance against the property, which may be voluntary or involuntary. There are many different kinds of liens, including a tax lien (for unpaid federal, state, or real estate taxes), a judgment lien (for monetary judgments by a court of law), a mortgage lien (when you take out a mortgage), and a mechanic's lien (for work done by a contractor on the property that has not been paid for). For a lien to be attached to the property's title, it must usually be filed or recorded with a local county government office. endorsement, adjustable rate mortgage endorsement, or even a condominium endorsement. In states where these title insurance endorsements are required and available, three endorsements could add $450 to the cost of your loan closing.
16. House inspection fees. Each house inspection fees can run $250 to $1,000 or more. If you are buying a home, you should have the home professionally inspected for problems. An inspection can cost as little as $250 for a basic inspection but you can can quickly multiply those fees if you add a radon test, water quality inspection, pest inspection, septic system inspection and lead inspection.
17. Title companyA Title Company is the corporation or company that insures the status of title on real estate (called title insurance) at a closing, and may handle other aspects of the real estate closing. or closing agent fee. The title company or closing agent needs to make money, too. This closing fee, which is separate from the cost of a title insurance policy, can run from $200 to $1,500 or more depending on the value of the home and the value of the mortgage you are obtaining. This fee is paid to the title company or closing agent to work through the paperwork for the closing. The title company and closing agent will not represent you or the seller in the transaction. They will act as an intermediary to facilitate the transaction or work on behalf of the lender.
18. Recording fees, of deed or mortgage. Expect to pay $25 to $150 each. When you purchase a home, you will receive title to the home in the form of a legal document. That document will need to get recorded with the local recorder of deeds office in the county in which the home is located or other office responsible for such documents. In addition, if you borrow money, the lender will have a mortgage or trust deed to record as well. The mortgage or trust deed is the document that gives the lender the right to foreclose and sell the home to satisfy the debt you took out. The recording fee will vary from state to state but you should expect to pay at least about $100. In some states, there is a mortgage tax. That tax is based on the amount of the mortgage. If the mortgage tax is 1 percent and your mortgage loan is for $250,000, the tax will be $250 to record the document.
19. Local city, town, or village property transfer tax; county transfer tax; state transfer tax. These charges vary from municipality to municipality, and are usually either a flat fee or are based on the sales price of the house. For example, in Chicago, the buyer picks up the city transfer tax, a hefty $3.75 per $500 of sales. The range is generally nothing to $10 per $1,000 of sales price.
20. Flood certification fee. A fee you’ll pay for the lender to determine whether the home you’re buying is located in a flood zone, $10 to $50. If your home is in a flood zone (and these zones are being redrawn by FEMA all over the country), your lender may require you to buy flood insurance. Read more about flood insurance or go to FloodSmart.gov, the government website headquarters for flood insurance information.
21. Attorney fee. If you need an attorney to help you close your deal, the flat fee rate generally starts around $500.
22. Condo move-in fee. A building charge that can run from nothing to more than $500. (Whether your building charges a move-in fee or not, you may have to book your move-in date ahead of time, particularly if you’re in a condo building and will require the use of the elevator.)
23. Association transfer fee. Often required for condominiums and town house buyers, this fee can range from nothing to more than $500. In some cases this fee is billed to the buyer.
24. Co-op apartment fees. Often charged for the transfer of the shares of stock in a co-op transaction, the fees can range from $50 to $200 or might be based on the purchase price. In some cases this fee is billed to the buyer.
25. Credit checks for condo and co-op buildings by the board. These can run anywhere from $25 to $150 per credit check.
26. Move in deposit fees. Some condominium associations will charge you a deposit for the right to move into the building. In some cases the deposit is refundable and in others, it is an outright fee paid to the association. These fees can run from $50 to $2,000.
27. Assignment fees. Some lenders immediately sell the loan they just gave you to an investor or another institution. In that case, the lender may charge you an additional fee to assign that loan. The fee can be as little as $25 but can be quite a bit more if the fees in your state are high to record or file the documentation to reflect the assignment of the mortgage.
28. Delivery and email fees. You might think that in this electronic age, there might be some economic savings by using email. But many title companies and closing agents may charge to receive documents by email from lenders. That fee can be as little as $10 and as high as $100. Closing agents and title companies defend this charge as a fee to cover their expenses in maintaining the email server for this purpose and for the cost of printing documents along with the oversight of the package preparation. Even if you pay this fee, most title companies and closing agents may also charge a fee to send documents back to your lender. When you sign your loan documents for the purchase of your home, the lender will want those documents back and for that the closing agent or title company will charge an additional fee.
29. Notary and other fees. As laws have changes, some states have enacted some laws that require additional paperwork to transfer title of a home. That additional paperwork might have to be reviewed and signed by a notary public and for that the notary public might be able to charge a fee. In some cases the notary public fees are nominal and in other states they can be $25 to witness your signature on a document.
30. Mortgage Insurance. Last, but not least, if you don’t have enough money to put down towards a twenty percent down payment, you will find your self paying for mortgage insurance. Mortgage insurance is also referred to as PMI (private mortgage insurance), or in the case of FHA loans, MI (mortgage insurance). The cost of mortgage insurance can vary depending on your down payment. The higher your mortgage and the lower your down payment, the more you will pay. And, if your loan is an FHA loan you may find that you will have to buy in to get the mortgage insurance. Some loans will carry a monthly payment for mortgage insurance while others can have a high upfront payment. Don’t be surprised if you see your monthly mortgage payment increased by $100 for mortgage insurance and don’t be surprised if you have an upfront payment of $1,800 towards mortgage insurance. You’ll need to talk to your mortgage brokerA Mortgage Broker is a company or individual that brings together lenders and borrowers and processes mortgage applications. or lender to get the exact figures.
All of the fees that you are charged should show up on your HUD-1 form. They should also be detailed in the good faith estimate (GFE) that your lender is required to provide you by law within three business days of putting in your loan application. But savvy home buyers will ask the lender to give them a good faith estimate before they complete the loan application process.
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