Understanding Your Closing Costs
Closing costs can seem like a broad term that many buyers and sellers never really get the details of. They’re something that are included in the negotiations of most contracts but do you really know what fees closing costs really cover.
Here’s a quick view guide of what could be under that umbrella term.
Application Fee : A fee charged by the lender to make initial application for the loan. This will allow the lender to pull credit information in order to issue a preapproval.
Closing Fee: A fee charged by the Title Company who prepares the closing documents and will close the loan.
Commitment Fee: Also known as an origination fee. Usually 1% of the mortgage amount. Many lenders do not have an origination fee.
Discount Points: Used by the lender to adjust the yield on the mortgage when sold to an investor. Each point is equal to 1% of the loan amount. By buying points the borrower can obtain a lower interest rate.
Homeowner’s Insurance: The first year’s premium must be paid prior to closing. A copy of the policy and paid receipt will be required at closing.
Mortgage Insurance: Usually required by the lender when the down payment is less than 20%. Some lenders have programs where instead of PMI the borrower will have a higher interest rate.
Prepaids: Adjustments to an escrow account set up and paid at the time of closing. Ex: interest, taxes, homeowners insurance, and mortgage insurance.
Tax Service Fee: Charge by the lender to set up the escrow account.
Recording Fees: Charged by the state or municipality for entering the documents into public record.
Survey Fee: The cost of the survey required to assess the legal boundaries and look for encroachments on the property.
Title Insurance: Provides protection for the lender and borrower against loss due to legal defects in the title.
Underwriting Fee: A fee charged by the lender to assure the loan has been legally underwritten.
Not all fees apply to each transaction. Be sure to speak with your lender about the fees that apply to your loan!
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