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Typical Closing Costs
APPRAISAL FEE
This is charged to pay an appraiser to research and assess the
market value of the property on which a mortgage is being placed.
Instead of being charged for separately, this fee may be charged
for as part of a mortgage application fee.
COURIER/MESSENGER FEES
This fee pays for overnight courier services and messenger services
used to transport documents to and from the lender and to and
from the local county courthouse where the deed and mortgage
are recorded.
CREDIT REPORT FEE
This is charged to pay a credit service bureau to provide the
lender with a report detailing a borrower's credit history.
Instead of being charged for separately, this fee may also be
part of a mortgage application fee.
DOCUMENT PREPARATION FEE
This is sometimes charged by lenders to offset costs associated
with preparing paperwork for a loan closing.
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FLOOD CERTIFICATION FEE
This is charged to offset fees paid by lenders to flood service
companies to determine initially and on an ongoing basis, whether
properties on which the lender has a mortgage are part of or
become part of a "flood hazard area" as determined by appropriate
Federal agencies. If so, the property owner is required to obtain
flood insurance.
HAZARD INSURANCE ESCROW
Similar to real estate tax escrows, many lenders require that
they collect 1/12 of the property's annual hazard insurance
premium with each mortgage payment to fund an escrow account
from which the lender will pay the premium when it becomes due.
(Hazard insurance is property insurance that you are required
to purchase to cover any damage that may occur to the property
itself or to someone while in or on the property.) Even though
in a purchase transaction you are required to pay the first
year's premium prior to or at the closing and in a refinance
transaction the insurance may be paid up for many months following
the closing, the escrow insures that the lender will have enough
money in your escrow account when the premium next becomes due.
The lender is also entitled to collect an additional amount
to provide a one to two month "buffer" in your escrow account.
At closing, hazard insurance escrow requirements generally
range from two months in purchase transactions to anywhere
from one to eleven months in refinance transactions.
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INSPECTION FEE
This may be charged if a lender has to have someone inspect
a property after an appraisal has been done. For example, if
work being done to a property is not completed at the time the
appraiser viewed the property.
MORTGAGE INSURANCE
In the event that the loan you are requesting from the lender
exceeds 80% of the market value of the property being mortgaged,
the lender will generally require you to pay for obtaining a
mortgage insurance policy. This protects the lender if you default
on your loan and the equity in the property is not sufficient
to cover any losses the lender incurs as a result of that default.
Depending on the amount by which the "loan to value ratio" exceeds
80%, the first year's premium generally ranges from .35% of
the loan amount to 1% of the loan amount. The first year's premium,
which is generally higher than subsequent premium amounts, is
sometimes paid at time of closing.
MORTGAGE INSURANCE ESCROW
In the event you are required to obtain mortgage insurance,
as described above, the lender will generally require that they
collect 1/12 of your mortgage insurance premium with each mortgage
payment to be able to pay the premium when it next becomes due.
The first year's premium is sometimes paid at closing with an
additional one or two month payment being collected to begin
the escrow account.
POINTS
These are fees charged by lenders that help lenders offset the
costs lenders incur by providing you with mortgage funds. One
point equals 1% of the loan amount. In a typical transaction,
a borrower pays from 0 -2 points to the lender. The number of
points is directly related to the interest rate charged by the
lender. The more points a borrower pays, the lower the interest
rate and vice versa.
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PREPAID INTEREST
At the time you obtain a mortgage loan your first payment is
generally due on the first day of the second month following
your loan closing. That is because mortgages are generally paid
"in arrears". (In other words, the payment being made on the
first day of the month is for the interest due for the month
preceding the payment.) For example, if you close on the 15th
day of January, your first payment will be due on March 1 and
that payment will pay for the interest accrued during the month
of February. Therefore, the lender at closing, will charge you
for the interest due for the period from the date of the closing
to the beginning of the following month. (In our example, that
period would be from January 15 to February 1.)
As a result, depending on the day of the month in which
you close, prepaid interest can be from 0 days to 30 days.
Prepaid interest (on a per diem basis) is calculated by multiplying
the loan amount by the annual interest rate and dividing that
number by 360 or 365 (depending on the lender).
REAL ESTATE TAX ESCROW
Many lenders will require that they collect 1/12 of the property's
real estate taxes with each monthly mortgage payment that you
make to fund a tax escrow account from which the lender wil
make the real estate tax payments as they become due. Since
real estate tax payments are due at different times during the
year, the lender may need to collect all or a portion of the
next real estate tax payment at the time of your loan closing
(depending on the month in which the closing occurs) to insure
that they have enough money in your escrow account when the
next tax payment becomes due. The lender is also entitled to
collect an additional amount to provide a one to two month "buffer"
in your escrow account.
SURVEY FEES
This fee is charged to pay a surveyor/engineer to survey the
property being mortgaged and prepare a "plot plan" which includes
a certification that the structures and other improvements on
the property do not violate any property laws and do not encroach
upon anyone else's property.
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TITLE SEARCH FEE / TITLE EXAMINATION FEE
These fees (generally
expressed as either a title search fee or a title examination
fee) are charged to pay for the cost of researching and/or
examining the records of the county in which the property
lies to determine that the title to the property is free and
clear of all defects, liens and encumbrances that could affect
the use and/or value of the property.
TITLE
INSURANCE FEE
This fee is charged to pay for a title insurance policy
(known as a "lenders title insurance policy" which protects
the lender in the event there is a defect in the title to
the property. Most lenders require that such a policy be purchased
by the borrower at closing.
The borrower has the option of purchasing an "owner's title
insurance policy" to protect the borrower's interest in the
property in the event there is a defect in the title, for
an additional premium. However, an owner's policy is not required
by the lender.
UNDERWRITING FEE / PROCESSING FEE
These are types of fees charged by some lenders to offset
the costs lenders incur in reviewing a borrower's application
for a mortgage loan.
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