What costs should I expect at the loan closing?
At the loan closing, you must pay your down payment and other 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 taxes, appraisals, credit reports, and title insurance should be comparable for all borrowers.
Typical closing costs and fees that you may expect are:
Loan Origination Fee: a percentage of the mortgage (generally 2%) charged for setting up, and evaluating the loan application. This fee is a revenue item for the lender and/or broker.
Credit Report Fee: requested by the lender 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 the 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 investigation – 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 a loan.
Recording or Transfer Fees: a small fee charged to cover the paperwork to record the home purchase and transfer ownership.
Interim Interest: interest from the closing date to the end of the month is generally charged to the buyer
Property Taxes: buyer’s prorated portion of the 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 expenses 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.