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. In order to be prepared to pay the closing costs, you may request a Loan Estimate or estimated fees sheet from the lender.
Typically, one time closing costs average about $3000 on a loan (not including discount points to buy down the rate.)
Funds needed to set up escrow accounts to hold the taxes and home insurance are considered pre-paids and not one time costs. Amounts needed for this will vary based on your annual home insurance premium and annual tax bill, as well as what time of year you are purchasing or refinancing.
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
Application Fee: required by the lender to process your loan application, often required with the application, generally non-refundable
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 home to be mortgaged; the appraisal is a factor in determining the amount the lender will loan
Survey Fee: may be required - verifies the legal position of the home on the property and ensures that there has been no encroachment on the 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: optional payment-in addition to regular one time closing costs that lower the interest rate (each point is 1% of the mortgage amount - $120,000 mortgage discount point would cost $1,200 and typically lower the interest rate by 0.125 percent)
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 generally charged to the buyer
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-or Pre-paids: escrow accounts are often set up to continue for the life of the loan, where a specified portion of the mortgage payment goes into an escrow account to cover certain on-going property related expenses and payments such as taxes and insurance.