What Are Closing Costs?
You've found the right home, your offer has been accepted, and your financing is moving forward. Before you receive the keys, there is one important step left: closing.
Also called settlement, closing is the process of transferring ownership of a property from the seller to the buyer. During this process, buyers typically sign a number of documents and pay the down payment along with various closing-related expenses.
Because these costs can add up, it is important to understand what you may be paying for. Closing expenses can include mortgage-related fees, insurance costs, taxes, legal or title-related expenses, and government charges. The exact amount will vary depending on the property, lender, location, and terms of the transaction.
Appraisal Fee
This fee covers the cost of having the property professionally appraised to help determine its market value. In some cases, this may have already been paid during the mortgage application process.
Credit Report Fee
This fee covers the cost of the credit report requested by the lender. It may already have been paid when you applied for your mortgage.
Loan Origination Fee
This fee may be charged by the lender to cover the administrative and processing costs associated with preparing the mortgage.
Loan Discount or Points
Some borrowers choose to pay points upfront in exchange for a lower interest rate. Each point generally represents one percent of the loan amount.
Title Insurance & Related Fees
Depending on the transaction and location, these costs may include title searches, title examinations, title insurance, document preparation, and other related fees.
Mortgage Insurance
Certain mortgages with lower down payments may require mortgage insurance. This protects the lender if the borrower is unable to repay the loan. Requirements vary depending on the type of mortgage and lender.
Prepaid Interest
You may be required to pay interest covering the period between the closing date and the date your regular mortgage payments begin.
Property Tax & Insurance Adjustments
Depending on how taxes and insurance are handled in your transaction, you may be required to pay or reimburse certain amounts at closing. Your lender, lawyer, or closing professional can explain how these adjustments apply to your purchase.
Recording, Registration & Transfer Fees
Government or administrative fees may be charged to record or register the purchase documents and officially transfer ownership of the property.
Closing costs vary based on the property, lender, location, and structure of the transaction. Be sure to speak with your real estate professional, lender, lawyer, or other appropriate closing professional to understand which costs apply to your purchase and how much you should plan to bring to closing. In some transactions, certain costs may also be negotiated as part of the offer.
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