Closing Costs

There are certain standard costs associated with closing the sale of a house (and even with a refinance of a house). These fees are split between the buyer and the seller (or paid for by the buyer totally in a refinance) as spelled out in the sales contract.

As a realtor negotiates the sales contract for you, s/he will not only work to get the sales price you want, but s/he will also work to limit the number of closing costs for which you will be responsible.

I will walk you through the closing costs, answering any questions you may have explaining which costs are decreed by law to be yours and which are negotiable.

Good Faith Estimate
Buyers will receive a "Good Faith Estimate" of closing costs at the time the loan application is submitted to the lender.

Loan-Related Closing Costs
Loan Origination Fee
This covers the administrative expenses in setting-up and processing the loan. The loan origination fee may be a percentage of the mortgage amount.

Points (optional)
An option for the home buyer is to pay points to lower the interest rate at which the loan will be repaid. Each point equals 1 percent of the mortgage amount. For example: on a $150,000 loan, 1 point would equal $1,500.

Appraisal Fee
The fee for having the house appraised may be incorporated into the closing costs or payment may be required by the lender at the time the loan application is submitted.

Credit Report
The lender uses a credit report to determine the creditworthiness of the loan applicant. This fee is often paid when the loan application is submitted.

Interest Payment
Typically the buyer is required to pay interest on the mortgage loan to cover the time between the closing date and when the first mortgage payment period begins. For example: If closing is on May 15. Your first monthly payment begins to accrue interest on June 1 with your first mortgage payment due July 1. At closing, an interest payment covering the accrual period between May 15 and May 31 may be required.

Escrow Account
At closing a payment may be required to fund the escrow account if the lender is paying home insurance, property taxes and/or other expenses out of the escrow account. If you are financing more than 80% of the sale price of the home, you will be required to escrow home insurance, property taxes, and any other types of insurance required by the lender (such as flood insurance if the property is located in a flood zone).

Tax Closing Costs
Property Taxes
This is the one closing cost that is often prorated between the buyer and seller. If the seller has already paid the annual property taxes, the buyer typically reimburses the seller for the period in which the buyer will be occupying the property. Likewise, if the taxes have not yet been paid, the seller typically reimburses the buyer for the period in which the seller occupied the property.

Transfer Taxes and Recording Fees
This is the cost for transferring ownership of the property and recording the purchase documents. The fee is often calculated as a percentage of the sales price.

Insurance Closing Costs
Homeowner's Insurance
This insurance covers replacement costs for damages caused by fire, wind, or other disaster that might affect the value of the property. Typically, the insurance also includes personal liability and theft coverage.

Flood or Quake Insurance
Additional hazard insurance coverage that is required for homes located in a designated hazard zone as established by the Federal Emergency Management Agency (FEMA). An appraiser, inspector, or your realtor can let you know if a property resides in a hazard zone.

Private Mortgage Insurance (PMI)
Insurance required for conventional mortgage loans when the borrower's down payment on the house is less than 20 percent of the loan value. Mortgage insurance is required on all FHA loans, regardless of the amount of down payment made.

Title Insurance
This policy protects both the buyer and lender by insuring a clear chain of title. (In other words, it insures that that the person who sells the house has the legal right to do so.)