Closing Costs

There are certain standard costs associated with closing the sale of a house. These fees are split between the buyer and the seller, as spelled out in the sales contract.

As we negotiate the sales contract for you, we will not only work to get the sales price you want, we will also work to limit the number of closing costs for which you will be responsible.

We will walk you through the closing costs, answering any questions you may have explaining which costs are decreed by law to be yours and which are negotiable.

Buyers will receive a “Good Faith Estimate” of closing costs at the time the loan application is submitted to the lender. The estimate is based on the loan officer’s past experience and may not include all the closing costs. We will be glad to review the “Good Faith Estimate,” answering questions and highlighting missing costs and estimates we believe to be low.

Here is an overview of the standard costs that come with closing the sale of a house.

Loan Related Closing Costs

Loan Origination Fee: This covers the administrative expenses in setting-up and processing the loan. The loan origination fee may be a percentage of the mortgage amount.

Points (optional): An option for the home buyer is to pay points to lower the interest rate at which the loan will be repaid. Each point equals 1 percent of the mortgage amount. For example: on a $150,000 loan, 1 point would equal $1,500.

Appraisal Fee: The fee for having the house appraised may be incorporated into the closing costs or payment may be required by the lender at the time the loan application is submitted.

Credit Report: The lender uses a credit report to determine the creditworthiness of the loan applicant. This fee is often paid when the loan application is submitted.

Interim Interest Payment: Typically the buyer is required to pay interest on the mortgage loan to cover the time between the closing date and when the first mortgage payment period begins. For example: If closing is on May 15, interest accrual will begin that day. Your first payment however will not be collected until July 1st. That payment will bring your accrued interest current for the month of June. The interest accrual from May 15th through May 31st will be calculated and charged as a line item on the closing statement. As a result this charge is added to your closing costs. Scheduling your closing towards the end of the month will lower your closing costs because there are fewer days to calculate the interim interest. Some lenders will also permit you to receive an interest credit if you close by the 5th business day of the month. For example, if you close on May 5th, your fist payment will be due June, 1st. On the settlement statement the lender will give you a credit for 5 days of interest since you will need to make a full month’s payment on June 1st.

Escrow Account: At closing a payment may be required to fund the escrow account if the lender is paying home insurance, property taxes and/or other expenses out of the escrow account.

Insurance Costs

Homeowner’s Insurance: This insurance covers replacement costs for damages caused by fire, wind or other disaster that might affect the value of the property. Typically, the insurance also includes personal liability and theft coverage.

Flood or Quake Insurance: Additional hazard insurance coverage that is required for homes located in a designated hazard zone as established by the Federal Emergency Management Agency (FEMA). As we tour houses, I will let you know if the property resides in a hazard zone.

Private Mortgage Insurance (PMI): Insurance required for conventional mortgage loans when the borrower’s down payment on the house is less than 20 percent of the loan value.

Title Insurance: This policy protects both the buyer and lender by insuring a clear chain of title. (In other words, it insures that that the person who sells the house has the legal right to do so.)

Taxes

Property Taxes, Transfer Taxes, and Recording Fees