What Are Closing Costs?

In order to better inform home buyers about lending costs, HUD created a statement that shows the costs of items associated, however it does not explain each item and you only get this document shortly before closing.  Let’s take a closer look at costs of financing a home that are sometimes lumped together under the broad name of “Closing Costs”.

Appraisal Fee: The appraisal is usually required by the lender and it verifies that the home’s sale price is comparable to fair market value.

Attorney Fee: Fee to prepare and record the official home buying documents.

Escrow Fee: Cost of escrow services. Sometimes escrow fees include title insurance, recording charges and some lender’s charges.  Find out exactly what escrow is here.

Inspection Fees: Inspections for pests & structure are usually required by the lender to make sure that the home they are lending on is a sound investment. Other inspections that you request such as lead and radon are optional but can also be paid in closing.

Loan Application Fee: Paid to mortgage broker to process the loan application.  They cover items including credit report checks and administrative fees.

Loan Discount Points: Optional prepaid interest on the loan paid to the lender. Read more on Discount Points here.

Loan Origination fee: Paid to lender to cover the costs of processing the loan and their bank employees.

Mortgage Broker Fee: Fee for Brokers services to find the best mortgage to fit you.

Notary Fees: Sometimes wrapped up in Escrow or Attorney fees, this is to make sure documents are official and binding.

Prepaid Items: Property taxes, home owners insurance, home warranties and other items that can be paid (or are required to be put in escrow) before they are “due”.

Recording/Filing Fee: Charged by local government to record the deed and entering the official record of changing property ownership.

Survey Fees: Confirms the lot size and dimensions and checks for encroachments. Most of the time this is not needed unless it is a commercial property or there is reasonable doubt.

Title Search: Sometimes lumped together with attorney’s fees. This makes sure that the home is free and clear of all liens and people who may make a claim to it.

Title Insurance: Optional service that protects you and the lender in case a title is not clean and clear when researched.

Transfer taxes (stamps): A tax on the whole home buying transaction required by law.

Underwriting Fee: Covers the cost of evaluations the mortgage application.

Real Estate Commission: Usually paid by the seller to the real estate broker for marketing the home, finding a buyer and assisting in negotiations.

It is important to know what you are being charged for closing costs so you can be prepared and informed during the closing process.  If you have questions about closing costs, speak to your Realtor® at Carter & Roque Real Estate for guidance and advice.

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