Understanding the Cost of Closing on Your House

Buying and selling a home can be a complicated process that involves several different entities and a whole bunch of paperwork. In order to coordinate the transaction and to facilitate the transfer of funds, paperwork needs to be processed, titles must be switched and insurance reports collected, in addition to several other things.  And of course, all this costs money, hence the term “closing costs”. Understanding what these are and how much they will amount to, is a very important step in the home buying and selling process and one that everyone needs to consider carefully when setting the price of a home or obtaining a loan. Here is what you need to know about closing costs.

• Sellers and buyers may negotiate with each other to determine who will pay what portions of these costs. It is fairly common for one party to offer to pay all of the closing cost in order to make the deal more enticing.
• A large chunk of these costs are associated with securing financing.
• Buyers should be provided with a Good Faith Estimate (GFE) at the time of the loan application, which outlines what fees they will be accessed. Even though these costs are outlined in this document, they are still just an estimate and are subject to change.
• Standard Closing Costs include: loan-related fees, appraisal fee, fee for obtaining your credit report, interest payments, escrow fees, taxes, loan origination fees, points, property taxes, private mortgage insurance (PMI), recording fees, transfer fees, homeowners insurance and title insurance.
• Realtor commissions are NOT part of closing costs. They are an additional expense and will be outlined in your Seller’s Settlement Statement.

So, now the question is, how much do all these fees amount to? Just like anything else, it depends on the specific transaction. Below are some of the line items you might see on your closing documents:

• Appraisal Fee: This usually costs about $500 – $700 and will depend on the kind mortgage product being applied for and the amount being financed. This fee is typically collected at the time of the loan application. Cash buyers can waive the appraisal if they like and save the expense.
• Broker Fee: This fee is charged by the financial broker and is paid at closing.
• Closing Fee: The title company that handles the closing will assess you a fee for processing the loan package and transferring the funds from one lender to the other. This fee is usually split 50/50 between the buyer and seller and costs $375 – $400.
• Credit Report: You can expect to pay between $25 and $50 per person for this.
• Document Preparation Fee: This is a charge for the cost of preparing legal papers such as the mortgage, deed of trust, note or deed and/or other loan and title documentation.
• Documentary Fee: A fee of 1¢ per $100 of the purchase price is collected at closing.
• Down Payment: This will depend on the loan, but is generally anywhere from 3.8% to 20% of the purchase price.
• Inspection Fee: This is paid by the buyer and will depend on the size of the home, its condition, age and the purchase price.  You can expect to pay between $450 and $600 for this.
• Origination Fee: You will be charged 1% – 5% of the loan amount which covers the cost of making the loan available and for the work associated with its processing.
• Mortgagee’s Title Policy: A fee accessed to the buyer to “insure the lender under a deed of trust against loss caused by an invalid title.”
• Private Mortgage Insurance (PMI): You are charged a percentage of the amount of the loan, which is due either before or at closing. There is also a PMI fee wrapped in your monthly payment amount as well. This fee is waived if you can meet the standard 20% down.
• Tax Service Fee: This is a fee paid to a tax service agency for verification that taxes have been paid on the property.
• Transfer tax: Also called deed tax, mortgage registry tax, and stamp tax. This tax is collected in some municipalities whenever property changes hands and is set by state and/or local governments.