BUYER’S CLOSING COSTS
Purchasing a home can be quite daunting at times, especially when looking at the money involved. At closing you will be given a “Settlement Statement” that will summarize all of the fees that comprise your closing costs. Below, we have provided a list of typical fees and the approximate amounts that you can expect to pay for each. Please remember that these are rough estimates and may vary on where you live, your credit, and a number of other factors.
FEES IMPOSED BY THE LENDER:
LOAN ORIGINATION FEE: 1% of the purchase price. The loan origination fee is another name for a “point” and it is tax deductible. The number of “points” you pay varies from lender to lender.
LOAN DISCOUNT: The “loan discount” refers to the “points” you pay to buy down your interest rate. If you choose to pay points, each point will be 1% of the loan amount. Take out a loan for $100,000 and 1 point will equal $1000. As a general rule of thumb, for each point you pay, you buy down the interest rate by 1/4%. So, for example, you could pay zero points and get a 7.75% interest rate. Or you could pay 3 points and get a 7% interest rate. If you are purchasing a house, points are tax deductible the year you take out the loan. If you are refinancing a house, you have to deduct the points over the life of the loan.
DOCUMENT PREPARATION FEE: Lenders have to prepare several documents in the process of granting you a loan. The process is complicated and consumes a large amount of resources. Lenders charge this fee to recoup their costs. This fee may vary from lender to lender.
ADMINISTRATIVE FEE: This fee covers underwriting and document preparation. Some lenders lump the two together and call it their “administrative fee.” The fee will likely vary among lenders.
FUNDING FEE/WIRE FEE: This fee covers the cost of wiring your loan money to whoever is conducting your closing. This fee is imposed by the banks.
CREDIT REPORT: Lenders and brokers pull your credit report to see if you have a positive payment history. If they require a full residential mortgage credit report, that’s more expensive because the credit reporting agency actually takes the time to call your creditors and verify the items on your credit report. Some lenders are now satisfied with a simpler credit report called a “tri-merge” that contains information from all 3 major credit bureaus and does not get manually verified.
TAX SERVICE FEE/ESCROW FEE: Lenders like to make sure you are paying your property taxes, because if you’re not, the county can seize your home and the lender won’t get paid. So, at the very least, lenders hire an outside company to monitor whether your taxes are being paid. Often lenders require you to send extra money along with your mortgage payments. They collect the money in an escrow account and then pay your property taxes for you.
APPRAISAL FEE: Lenders require a professional appraisal so they will know if the home you’re buying is worth the amount of money they are lending you. If you are refinancing, the lender may be satisfied with a “drive-by” appraisal, which is much less expensive.
SURVEY FEE: A survey is performed to make sure the boundaries of your property are clean and clear. Surveyors look for things like misplaced fences, drainage pipes and shared driveways that may cloud the property lines and cause a dispute. Lenders ask you to pay for a survey if you are buying a home.
FLOOD CERTIFICATION FEE: If you are buying a single-family home, the lender will want to have a flood survey done to see if the house is in a flood zone. An outside company will review government charts to find out.
HAZARD INSURANCE: Lenders require you to purchase at least fire insurance to protect the property since it’s collateral for the loan they are giving you. Most buyers choose to purchase full homeowner’s insurance which covers fires and other disasters (except flooding.) The insurance company you choose must be approved by the lender. Some brokers and lenders will try to sign you up for a full year’s coverage, which can be difficult to pay for at the same time as all those other closing costs. Most lenders are satisfied if you pre-pay for 2 to 4 months of insurance coverage.
INTEREST: If you are refinancing, never schedule your closing for the beginning of the month. Why? Because that means there are several days worth of interest which you will either have to pay at closing or roll into the mortgage. It’s hard enough to come up with the cash for closing. And you don’t want to raise your mortgage any higher.
FEES IMPOSED BY THE BROKER:
MORTGAGE BROKER FEE: 1%-5% of the loan amount
Your mortgage broker is entitled to make a commission for the work they do in finding you a loan. But their fees are regulated by the government, so there is a limit. In Virginia, a broker’s commission must be disclosed in writing and signed by the borrower. There is no cap on broker fees for a first mortgage in Virginia. The cap for second mortgages is 5% and includes the broker fee plus all other points charged.
FEES IMPOSED BY TITLE AGENTS AND SETTLEMENT ATTORNEYS:
CLOSING FEE: This is the fee that a title agent of settlement attorney charges to conduct the meeting where you sign all the paperwork to finalize your loan and purchase or refinance the home.
SETTLEMENT FEE: see above. A “settlement” is the same thing as a “closing.”
ABSTRACT OR TITLE SEARCH: This fee is charged by the title agent or settlement attorney to cover the cost of sending somebody to the courthouse to research the history of the property you want to buy or refinance. Some title agents and settlement attorneys have somebody in-house who performs this work, others hire an outside company.
TITLE EXAMINATION: This is the fee some title agents and settlement attorneys charge to analyze the results of the title search done at the courthouse. They look for liens, judgments and ownership disputes that may hurt you or the lender later on. .
TITLE INSURANCE BINDER: This is the paperwork in which the title insurance company promises to provide title coverage once the sale is complete based on certain conditions being met. It is prepared by the title agent or settlement attorney. Some title professionals include it in the cost of the title search or title exam.
(TITLE) DOCUMENT PREPARATION: The lender prepares the bulk of the documents required to close a loan and buy a home, but title agent and settlement attorneys prepare some too. Some charge for this, others include it under other line items.
NOTARY FEES: Title agents and settlement attorneys must get some documents notarized. Most have an in-house notary, others don’t.
RELEASE OF LIEN FEES: This is the fee for getting the county (and the previous lender) to change the records so the old homeowner and old lender are no longer mentioned listed as owners. Some title agents and settlement attorneys include this service under another heading. Others list it separately so you know exactly what you’re getting.
ATTORNEY’S FEES: see above. This should be the same as the fee called “Settlement or closing fee.” If a settlement attorney performs your closing, they may list this service under “attorney’s fees” instead.
COURIER FEE: Title agents and settlement attorneys sometimes have to hire a courier to transport your documents.
(TITLE) ADMINISTRATIVE FEE: Some title agents and settlement attorneys lump document preparation and courier fees into one category and call it an “administrative” fee.
TITLE INSURANCE: Title insurance protects you and the lender in case something was missed during the title search. For example, if the county misspelled a name, somebody with a claim to your property might not show up during the title search. Lenders require you to buy a “lenders” policy to protect their interest in the property and many people purchase an owner’s policy to protect themselves as well.
If you are refinancing or if you are buying a house that the seller purchased less than 10 years ago, you may qualify for the “re-issue rate.” You may have to provide proof that there was a valid title insurance policy in place to get it. The discount ranges from 25%-30% off. The government does not require lenders to offer you the re-issue rate.
FEES IMPOSED BY THE GOVERNMENT:
RECORDING FEES: This fee varies wildly from one county to another. It is simply the amount the county clerk charges to make a record of the fact that you are purchasing this property. If it’s a refinance, this fee is typically still imposed, because the county has to record the new lender’s name. Some title agents and settlement attorneys will try to pad this fee.
TAX STAMPS: Based on purchase price. Varies by jurisdiction. This is a tax charged when a property changes hands. It’s sort of like a sales tax. The calculation is often different for first-time home buyers. If you are refinancing, the tax may not be charged or it may be charged on the difference between the amount of your old loan and the amount of your new loan. Call your county office of taxation and revenue to learn the formula.
RECORDATION TAX: see above. This is the same as “Tax stamps,” above. Just another name for it.
TRANSFER TAX: Varies by jurisdiction. A percentage of the purchase price. Many jurisdictions do not charge this tax on refinances. Call your county office of taxation and revenue to learn how this tax is calculated and whether it even applies to you.
Source: FOX 5 WTTG Washington D.C.