What Are Closing Costs?

By RealtyCrunch IncApril, 22nd 2020
What Are Closing Costs?

Closing costs are fees associated with your home purchase that are paid at the closing of a real estate transaction. This is where the title of the property is transferred from the seller to the buyer.

One thing to note for a borrower, many of the fees that make up closing costs are negotiable. This is where you can shop around to see if you’ll find other lenders who are willing to offer a loan with lower fees at closing.

What is a Closing Disclosure statement?

Closing Disclosure statement outlines the closing fees, which is typically provided to the borrower around three business days before closing.

What are the typical fees you can expect at closing?

The closing costs in a real estate transaction vary depending on where you live, the property you buy, and the type of loan you choose.

Below you’ll see a list of typical fees you can find at closing:

  • Application Fee: covers the cost for the lender to process your application
  • Appraisal: paid to the appraisal company to confirm the fair market value of the home.
  • Attorney Fee: paid to the attorney to review the closing documents on behalf of the buyer or the lender.
  • Closing Fee or Escrow Fee: paid to the title company, escrow company or attorney for conducting the closing.
  • Courier Fee: cost of transporting documents to complete the loan transaction as quickly as possible.
  • Credit Report: To cover the cost of running your credit report.
  • Escrow Deposit for Property Taxes & Mortgage Insurance: normally borrowers are asked to put down two months of property tax and mortgage insurance payments
  • FHA Up-Front Mortgage Insurance Premium (UPMIP): FHA loans borrowers are required to pay the UPMIP of 1.75% of the base loan amount which can roll into the cost of the loan if you prefer.
  • Home Inspection: As a buyer it’s recommended to get a home inspection to verify the condition of a property and to check for home repairs that may be needed before closing.
  • Homeowners’ Insurance: The first year’s insurance is often paid at closing to cover any potential damages to your home.
  • Lender’s Policy Title Insurance: insurance to assure the lender that you own the home and the lender’s mortgage is a valid lien, and it protects the lender if there is a problem with the title.
  • Loan Discount Points: fee that a borrower can choose to pay to reduce a loan's interest rate.
  • Owner’s Policy Title Insurance: insurance policy that protects you in the event someone challenges your ownership of the home.
  • Origination Fee: covers the lender’s administrative costs which is usually about 1 percent of the total loan.
  • Prepaid Interest: most lenders will ask you to prepay any interest that will accrue between closing and the date of your first mortgage payment.
  • Private Mortgage Insurance (PMI): If you’re making a down payment that’s less than 20% of the home’s purchase price, chances are you’ll be required to pay PMI. If so, you may need to pay the first month’s PMI payment at closing.
  • Property Tax: most often, lenders will want any taxes due within 60 days of purchase by the loan servicer to be paid at closing.
  • Recording Fees: charged by your local recording office for the recording of public land records.
  • Survey Fee: verification document of all property lines and things like shared fences on the property.
  • Title Company Title Search or Exam Fee: paid to the title company for doing a thorough search of the property’s records.
  • Transfer Taxes: tax paid when the title passes from seller to buyer.
  • Underwriting Fee: paid to the lender to cover the cost of researching whether or not to approve you for the loan.
  • VA Funding Fee: borrower may be required to pay a VA funding fee at closing payment.

How much are closing costs?

Normally, home buyers will pay between 2-5% of the purchase price of their home in closing fees. If a home costs $200,000, closing costs could be between $4,000 - $10,000.