Mortgage & Equity
11 Closing Costs
This section will discuss:
The various fees you pay at closing.
At the closing, you'll sign lots of papers and turn over some big checks. Some states require that you have a lawyer with you. In any case, you should at least have your lawyer look over the papers in advance of closing.
By law, closing costs can't be a surprise to the buyer on closing day. Your credit union lender must give you a written estimate of closing costs within three days of accepting your mortgage application. You should have an exact figure by one business day before closing.
Remember, all told you can expect closing costs to amount to 3 percent to 6 percent of the mortgage amount. And like the down payment, closing costs are due in full on the day of closing; they are not part of the mortgage amount. You may have to pay all of the closing costs listed below, or the seller might pay some of them.
Some key closing costs include:
- Loan origination fee - Paid to the lender to cover the administrative costs of the loan. May be a fixed dollar amount or a percentage of the loan, such as 1 percent.
- Loan discount points - Or just "points." Points adjust the lender's yield on the loan to market conditions. Each point equals 1 percent of the loan amount.
- Appraisal fee - The lender hires someone to appraise the house to verify that its value is enough to cover the loan. You most likely already paid this to the lender when you applied for your loan.
- Credit Report fee - To assess your creditworthiness, the lender gets a Credit Report (cost varies, usually $40 or more). Again, you paid this at loan application time.
- Flood determination fee - Paid to the lender to determine if the property is in a flood hazard area and needs flood insurance coverage.
- Interest - You will need to pay the interest covering the period from the closing date to the date of the first mortgage payment. For instance, if you close on June 12 and your first mortgage payment won't be made until August 1 (for amounts accrued in July), you'll need to pay the interest covering June 12 to July 1.
- Private mortgage insurance - If you need PMI because your down payment was less than 20 percent, you may have to pay the first year's premium at closing. Typically this is not required; the PMI premium is added into your monthly payment instead.
- Hazard insurance premium - You may need to pay the first year's premium (maybe more) at closing, or just bring proof that you already paid it.
- Reserves or escrow accounts - At closing, your lender may set up an escrow account into which you will make monthly deposits to cover your premiums for hazard insurance and PMI, if you have it, and also property taxes.
- Settlement or closing fee (or escrow fee) - Fee the title company or escrow company charges to hold the closing in its office and to perform closing duties.
- Document preparation fee - Paid to lender or title company/attorney for preparing closing documents.
- Title search - Assures that the seller owns the property and that there are no liens (legal claims against the property).
- Title insurance - Comes in two types of policies: lender's and buyer's. Protects each of you if any title problems turn up later that the title search didn't find.
- Recording and transfer fees - State or local governments often have a tax on property transfers.
- Survey - The lender may require this to confirm the property's legal description.
- Pest inspection - Fee for termite inspection, if required. Frequently, sellers pay this cost.
