What Are Closing Costs?
Closing costs vary from lender to lender, title company to title company, and mortgage broker to mortgage broker. What I will try to do here is explain in a general format the basic closing costs associated with a mortgage. Cost will be broken into two categories, non-recurring and recurring fees. Non-recurring fees are fees that only show up once when you get a loan. This explanation will break up the non-recurring fees as lender fees and title fees. In this way you can see who is charging what and what to look out for. After the loan closes you will not see these charges again until you apply for another loan. Recurring fees are fees that you see monthly, but are actually charged to you daily, such as interest on the loan, property taxes, homeowner association fees, and homeowner insurance.
Lender Non-Recurring Fees
- Loan Origination Fees: These are points that you pay to obtain a lower interest rate. 1 point is equal to 1% of the loan amount. On a mortgage of $300,000.00 at 1 point, you would pay $3,000.00. If this loan had 2 points you would pay $6,000.00.
- Loan Discount Fee: This fee is generally the same as the loan origination fee with one difference. The lender pays this fee to a broker. You do not pay this fee. This is a form of rebate pricing. Does it affect the interest rate you receive? Yes, because the bigger this fee is to the broker the higher the interest rate you will receive.
- Appraisal Fee: This a fee paid to a licensed real estate appraiser to determine the value of the property you own or are buying. It ranges between $250 and $400. It can be higher for a multi-unit or rental property.
- Credit Report Fee: This is a fee paid to a credit-reporting agency to run your credit report. Lenders usually run credit through three sources such as Experian, Equifax and Transunion and prepare a consolidated credit report. It ranges from $18 to $50.
- Lender Inspection Fee: If the lender has some question regarding the property that was not answered in the appraisal or other inspections that were done they may hire an independent inspection. This is rare but it does happen. It usually costs about a $100.
- Tax Service Fee: This is a fee paid to a company to track your property tax payments. If you don’t pay your property taxes, the lender will be notified by this company.
- Processing Fee: This is a fee charged by lender and/or broker for general handling of paperwork. It ranges from $395 and up. Watch out for this fee because it can be expensive from place to place.
- Underwriting Fee: This is a basic junk fee charged by lenders and is sometimes called a documents fee, processing fee, underwriting fee, etc. Sometimes lenders use all of these but typically the fees add up to be about the same as quoted here. It usually ranges between $695 and $995.
- Wire Fee: A charge to wire funds to escrow. It usually ranges between $40 and $100.
Title And Escrow Non-Recurring Fees
- Escrow Fee: This is sometimes called a settlement fee or closing fee. It varies according to the purchase price of the home or the loan size on a refinance.
- Title Insurance: This fee varies according to the purchase price of the home and/or the loan size.
- Document Preparation Fee: This is an escrow fee to prepare documents. This fee can be questioned. Find out what they are preparing that the lender did not. If they are preparing nothing this fee should be nothing. It is usually around $100.
- Notary Fee: This is a fee paid to a notary, escrow officer, to notarize your signature and verify identity. It usually ranges between $50 and $100 depending on the number of notarized documents.
- Recording Fee: This is a fee charged by the county to record documents. It usually ranges between $40 and $100 depending on number of documents to be recorded into public records.
- City & County Transfer Tax: This is a tax assessed by the county and sometimes the city on the transfer of title on real estate within the county or city jurisdiction. There are a few exceptions, though these fees do not exist on a refinancing because the property is not changing hands. The amount of the fee varies from county to county and from city to city. Sometimes it is paid by the seller. Call for a quote in your area.
- Interest: This is prepaid interest that you owe a lender at closing. It can be anywhere from 1 to 30 days of interest on the new loan. For further explanation go below to “What Is Prepaid Interest?” This topic is a little more involved than you might think.
- Property Taxes: These are any taxes outstanding on the property that must be paid prior to the lender closing (funding) the new loan.
- Homeowners Insurance: This is sometimes called hazard insurance, fire insurance, etc. Lenders typically require that you prepay anywhere from one to twelve months in advance depending on whether it is a purchase or refinance.
The distinction between recurring and non-recurring fees is an important one. On a purchase transaction the lender will only allow sellers to credit (pay for) the buyer’s non-recurring fees, not the recurring fees. On a no-cost loan the lender or broker will only be allowed to pay the borrower’s non-recurring fees not the recurring fees.