You've found your dream home, the seller has accepted your offer, your loan has
been approved and you're eager to move into your new home. But before you get the key,
there's one more step--the closing.
Also called the settlement, the closing is the process of passing ownership of property from
seller to buyer. And it can be bewildering. As a buyer, you will sign what seems like endless piles
of documents and will have to present a sizeable check for the down payment and various closing
costs. It's the fees associated with the closing that many times remains a mystery to many buyers
who may simply hand over thousands of dollars without really knowing what they are paying for.
As a responsible buyer, you should be familiar with these costs that are both mortgage-related
and government imposed. Although many of the fees may vary by locality, here are some
common fees:
- Appraisal Fee: This fee pays for the appraisal of the property. You may already have paid this
fee at the beginning of your loan application process.
- Credit Report Fee: This fee covers the cost of the credit report requested by the lender. This
too may already have been paid when you applied for your loan.
- Loan Origination Fee: This fee covers the lender's loan-processing costs. The fee is typically
one percent of the total mortgage.
- Loan Discount: You will pay this one-time charge if you have chosen to pay points to lower
your interest rate. Each point you purchase equals one percent of the total loan.
- Title Insurance Fees: These fees generally include the cost of the title search, title
examination, and title insurance.
- PMI Premium: If you buy a home with a low down payment, i.e., under 20% of the total sale
price, a lender usually requires that you pay a fee for mortgage insurance. This fee protects the
lender against loss due to foreclosure. Once a new owner has 20 percent equity in their home,
however, he or she can normally apply to eliminate this insurance.
- Escrow Accounts, Real Property Tax, and Home Owner's Insurance: Your mortgage
lender will open an escrow account to hold funds for future annual property taxes and home
owner's insurance (including flood, fire, and liability). The escrow account will generally contain
one year's advance tax and insurance premiums, and will be collected on a monthly basis as part
of your mortgage payments. How much Real Property Tax will be collected at closing will depend
on the actual Real Property Tax collection schedule and the current (seller's) to-date payment of
same. Your Home Owner's Insurance will be a "new" account not dependent upon the previous
home owner's payment schedule. You will need to apply for and secure insurance before
closing; some payment to the insurance carrier(s) will be "up-front" (at closing) and on-going
payments will be collected and paid for by your mortgage lender through escrow.
- Recording Fees and Transfer Taxes: In New York State the Real Property Transfer Tax is
approximately 1% of the Sale Price. The Recording Fee is charged in the form of a
"Documentary Stamps" tax of $4 per $1000 of the sale price.
Make sure you consult a mortgage professional in your area to find out which fees--and how
much--you will be expected to pay during the closing of you prospective home. Keep in mind that
you can negotiate these costs with the seller during the offering stage. In some instances, the
seller might even agree to pay all of the settlement costs.
The ABC's Of Closing Costs
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Terry Woods is a former Real Estate Professional.
These articles are for information purposes only
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