Overview of closing costs

Answer

There are many types of costs associated with buying a house. These costs are called closing costs, and they usually represent 2 percent of the price of the house, although the total could be up to 5 percent. Here is a list of some of the possible closing costs you might need to pay.

Loan costs represent the fees your mortgage lender charges.

Loan origination fee

This includes the process to get you approved for a loan up to the completion of the loan. This fee is typically 1 percent of the loan amount, but this varies by lender.

Underwriting fee
This fee either replaces the loan origination fee or is another fee in addition to the loan origination fee. This fee could be as much as $800.

Points (loan discount)
One way to get a lower interest rate is to pay a fee the lender charges. Each point represents 1 percent of the mortgage. If you pay points upfront at closing, you can lower your interest rate. This might be worth doing, depending on how long you think you’ll have the mortgage.

Appraisal fee
This includes the cost of an appraiser to give the lender an estimate of the worth of the home you wish to buy. The average cost is between $300 and $400.

Credit report fee
Lenders run your credit to determine whether you qualify for a loan and, if you do, the interest rate to charge you. This costs between $30 and $50.

Inspection fees
Lenders require this to ensure the house doesn’t have major problems that would be costly to fix. The average cost for a home inspection is $300.

Mortgage broker fee
This applies only if you used the services of a mortgage broker to help you find the best loan. This fee is usually 1 percent of the loan amount.

Lender requirements represent items the lender demands at closing.

Interest
At closing, you usually need to pay the loan’s interest from closing day through the end of that month. Later, you pay interest as part of your loan payments.

Private mortgage insurance
If you are required to pay private mortgage insurance, either because you didn’t put down 20 percent of the purchase price of the home or because you have an FHA loan, you might need to pay your first year’s premium at closing. The cost of this is usually between 0.3 and 1.2 percent of the loan.

Homeowners insurance
You might need to pay the premium for your homeowners insurance at closing. The average annual premium for homeowners insurance is $953.

Flood or earthquake insurance
If you need flood or earthquake insurance, you might need to pay the first year’s premium at closing as well. The average annual premium for flood insurance is about $700. The average annual premium for earthquake insurance is about $800.

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Title fees represent the costs to retrieve a property’s history.

Title search
This search, by looking at land records, determines whether the seller has the right to sell the property. Any debts or assessments on the property are discovered during the title search. Fees vary widely, from $75 to $450 or so.

Notary fee
A notary public is needed to make the papers signed regarding your house purchase legal. This usually costs between $2 and $10 per signature.

Attorney fees
Attorneys prepare legal documents relating to the sale. The buyer, seller or both would handle these fees, which can vary, usually between $500 and $1,000.

Title insurance
In case something was missed in the title search, title insurance protects you against problems that might come up later, such as someone questioning whether the house had a right to be sold or to protect you against any liens that might have been missed. Title insurance usually costs 0.5 percent of the home’s price.

Recording fees represent the costs to record the purchase in public records.

Recording fee
You pay this to the local government to enter the transaction, making the sale official. These fees are based on the number of pages recorded, usually about $10 per page.

Transfer taxes
These are local taxes based on the mortgage or the home’s purchase price. Price varies depending on the location of the home.

Miscellaneous fees represent additional costs that aren’t covered in the other sections.

Survey
Some lenders require a survey of the land to ensure that the boundaries are not on a neighboring property or that a neighbor isn’t encroaching on your property. Surveys could cost between $300 and $1,000.

Courier fees
This fee is for the person who delivers documents to the closing. This could cost about $30.

Homeowners Association fees
The seller usually pays this at closing, but you will be expected to pay your HOA dues if you buy in a development that has one.

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Escrow Fees
You might have an escrow account set up at closing. This is where you deposit money to a third party who holds the money and uses it toward things, such as your property taxes and homeowners insurance.

This helps people who might not be able to pay those big-ticket items in one lump sum. You pay monthly with your mortgage payment instead.

We recommend reading negotiating closing costs.

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