A Complete Guide To Closing Costs
First-time buyers may not be aware of the long list of fees under Closing Costs. Buying a house is a big investment and a tedious process, but we've got you covered on the details of these expenses – what they’re for, and how much they usually cost. In this article, the closing costs are divided into three categories: Lender Fees, Insurance Fees, and Title Fees.
Within three days of receiving your application, your mortgage company has to give you a Loan Estimate which itemizes estimated interest rate, monthly payment, and total closing costs for the loan. Here are some of the fees that could be included in that list:
- Loan Origination Fee – This is the fee for generating and processing your loan. The rate is usually 0.5-1% of the total loan amount.
- Discount Points – Basically this is for when you want to buy an interest rate. The amount of this depends on what rate was initially given to you and what rate you want to apply for. Note that this may be optional.
- Processing Fee – This is for submitting and gathering your loan application. Usually this costs less than $500 in the United States.
- Appraisal Review Fee – A professional appraiser will check the property for its market value. Lender require this to make sure that the house is actually worth what was declared in the contract.
- Credit Report Fee – A credit report is a detailed account of your credit history and your credit points. Lenders require this for qualification purposes for the loan. Usually it's the lender’s company themselves who order this from a credit report bureau.
- Courier Fee – Lenders employ couriers to deliver documents during the transaction. Some lenders will put this under the processing fee.
- Underwriting fee – This fee is for a series of steps that evaluate your loan application, like verifying the documents that you have passed, checking if the appraisal on your house is consistent with comparables, and assessing whether you income level is at par with your liabilities.
- Documentation preparation – Once the underwriting approves your loan, legal documents and miscellaneous such as the mortgage note and deed of trust should be prepared for closing.
- Wire transfer fee – This is the cost for wiring funds to an escrow company.
- Recording Fee – This fee is for recording the deed and mortgage at the local court house. The amount for this fee depends on the number of pages in the document
- Notary Fee – Documents such as the deed of trust must be notarized by a registered Notary Public before it can be recorded at the court house. This amounts to usually $10.
- Title Insurance – This is protection for you as a buyer to make sure that the title is clean and that no contentions will be made against you as the new owner of the house. This may be optional.
- Escrow fee – This is paid to the escrow company or the attorney who made the closing. This is usually a split expense on the buyer and seller.
- Private Mortgage Insurance (PMI) – This is required by lending companies if you made a down payment below 20%. When the deal is closed, this expense will be rolled into your monthly mortgage payment.
- Homeowner’s Insurance – This financially protects the property and its contents from disasters such as fire and theft. Most lenders require 1/6 of the amount of this to be put into an escrow account at closing.
- Flood Insurance – This will be required from you by the lender if the house is located in a flood zone.