What costs should I expect at the loan closing?
At the loan closing, you will be required to pay your down payment and other various closing costs and fees. Most of the closing fees are paid by the buyer, but some of the fees are prorated, by date, to the seller and the buyer.
The only fee that can be collected at the time of application, by federal law, is the credit report fee. The appraisal fee cannot be collected until the borrower has received the Lender’s Estimate and notified the lender that he or she has chosen to proceed with the application.
Certain fees vary from lender to lender, but generally, taxes, appraisals, credit reports and title insurance should be comparable for all borrowers.
Common closing costs and fees that you may expect are:
Loan Origination Fee: a percentage of the mortgage (generally 1%), charged to set up and evaluate the loan application. This fee is a revenue item for the lender and/or broker. A very common charge up until the late 1980’s, however, consumer advocates advised borrowers to shop for loans without “points”. This fee is currently rarely charged, though some lenders still try to charge it for government loans. Loan origination fees are common for non-qualified mortgages that do not conform to the underwriting guidelines of the secondary market.
Credit Report Fee: requested by the lender in order to evaluate your loan application (generally obtained from one of three major credit reporting agencies: Equifax, Experian, TransUnion).
Appraisal Fee: Used to obtain an independent appraisal of the subject property and determine its value. The appraised value helps determine the amount the lender will loan on that property.
Property Taxes: Dividing the current year’s property taxes between the buyer and seller. The buyer is responsible from the date of closing until the end of that year. The seller is responsible from the first day of the year until the date of closing.
Survey Fee: Verifies the legal position of the home on the subject property and ensures that there are no encroachments or setback violations on the subject property.
Title Search Fee: charged for a detailed search of the historical records related to a property to ensure that the seller is legal owner, that there are no liens, restrictive covenants, outstanding judgments or other claims against the property (A certificate of title issued as a result of a title search does not necessarily protect against hidden defects which did not show up in the search – often the lender will require title insurance for protection against such claims).
Title Insurance: often required by the lender for protection against hidden title defects; a lender’s policy only protects the lender – a buyer may also opt to purchase an owner’s title insurance policy.
Discount Points: An optional fee paid upfront to reduce the interest rate paid on the loan.
Recording or Transfer Fees: a small fee charged to cover the paperwork to record the home purchase and transfer ownership.
Interim Interest: the interest that you pay on your new mortgage from the day you close the deal to the day you start your regular monthly payments. This interest covers the period between when you officially take the loan and when the first payment cycle begins.
Here’s a simple way to think about it:
Closing Date: This is the day when you sign all the paperwork and the mortgage becomes yours.
First Payment Date: This is the day when your first monthly mortgage payment is due.
Interim interest is calculated from the closing date until the day before your regular mortgage payments begin. You pay it just once, and it’s a way to account for the fact that mortgage interest is paid in arrears (you pay the interest for the month that has just passed).
Property Taxes: buyer’s prorated portion of state and local government property taxes already paid by the seller (such as annually paid taxes).
Escrow Account Payments: Typically required by lenders when borrowers have less than a 20% down payment on Conventional mortgage loans. Required on FHA, VA and USDA mortgage loans. Sets aside funds for the upcoming payments of property taxes, the hazard/windstorm insurance annual premium, the flood insurance annual premium if the subject property is located in a federally designated flood hazard zone, the monthly private mortgage insurance premium on conventional loans with less than 20% down and the monthly mortgage insurance premium for FHA loans.
