Closing Costs are fees paid to lender for making a loan to a borrower. When you apply for a loan your lender is required by law to give you a Truth-in-Lending estimate of your closing costs. This estimate is based on local practices as well as the sales agreement with the seller. Both the buyer and the seller are responsible for portions of the closing costs.
Closing is a process that begin weeks before closing, and follows an outline set largely by a buyer's original offer to the seller of the house. That sales contract, once the seller signs it, covers the key elements of the settlement or closing.
Some of the costs depends on where you live and the local custom as to who pays what. The majority of the fees are in relation to the loan where the lender charges certain fees for giving you a mortgage. The RESPA (Real Estate Settlement Procedure Act) HUD-1 Statement outlines who pays what and a copy is given to the buyer at the end of the closing for his/her records.
Some of the general buyer and seller costs and fees are outlined below.
Lender Fees
- Origination fee
- Appraisal fee
- Credit report
- Inspection fee (newly constructed homes only)
- Underwriting fee
- Document preparation/review fee
- Tax service fee
- Mortgage insurance
What will a loan cost?
Your monthly payments go partly to repay your loan and partly to pay the fees for your loan, many of them relating to the closing, or settlement.
Most lenders require an up-front application fee to cover their expenses as they approve you. But ditech.com doesn't. That's right - with us, it's free to apply!
Additionally, lenders charge a loan origination fee. It's generally expressed as a single point (a point is defined as 1 percent of your loan amount). For example, if you were borrowing $100,000, your loan origination point would be $1,000 ($100,000 X 1%).
Title charges
- Attorney's fees
- Title insurance
- Transfer tax (excludes refinances)
- Recording tax
Miscellaneous charges
- Property survey
- Termite inspection
Prepaid expenses
(not part of the actual cost of the loan, but included with payment)
- Prepaid interest (interest that accrues between closing and the end of the closing month - paid in advance)
- Homeowner's insurance
- Real estate taxes
Five tips for saving money in closing costs.
- Before applying for a loan, find out if the application fee is refundable if you are turned down.
- Insure junk fees such as document-processing charges are waived.
- Try to negotiate closing fee such as legal fees, points, and appraisal. None of these are set in concrete and you don't know until you try.
- If the seller has owned the property for a long period of time, see if the lender will accept an updated version of the previous owners property survey. This can save 50% or more on title search issues.
- Skip mortgage life insurance if at all possible. You can often get much better term life rates through an independent carrier and you won't pay interest on it as you would through your mortgagor. There is one more benefit... the mortgagor is not necessarily the beneficiary as would be the case with mortgage insurance.
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