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Closing costs include the myriad fees for the services and expenses required to finalize a mortgage. In addition to down payment, buyer has expenses associated with home purchase, about 2-3% of the sale price for: Closing Costs (1-1.5% of the sale price) and Pre-Paids (1-1.5% of sale price).
Lender will disclose these fees to you. Couple of days before closing you will receive Settlement Statement Costs that will include exact expenses. The list is inclusive of fees you may see included on the Settlement Statement, but it’s not likely that your loan will include all of the fees listed here.
Many professionals work on a real estate transaction, these costs pay for their services.
- Loan Application Fee — This fee covers the cost for the lender to process your application. Before submitting an application, ask your lender what this fee covers. It can often include things like a credit check for your credit score or appraisal as well. Not all lenders charge an application fee, and it can often be negotiated.
- Credit Report — A credit report is pulled to get your credit history and score. Your credit score plays a big role in determining the interest rate you’ll get on your loan.
- Origination Fee — This covers the lender’s administrative costs. It’s usually about 1 percent of the total loan but you can sometimes find mortgages with no origination fee.
- Underwriting Fee — This also goes to your lender, covering the cost of researching whether or not to approve you for the loan.
- Appraisal — This is paid to the appraisal company to confirm the fair market value of the home. Some lenders charge this fee before closing and some will charge at closing.
- Closing Fee or Escrow Fee — Escrow company fee for overseeing oversees the closing as an independent party in your home purchase.
- Title Company Fee and Title Insurance — The title company researches the deed to your new home, ensuring that no one else has a claim to the property and then issues title insurance based on the research.
- Lender’s Title Insurance Policy — Paid by Buyer, this is insurance to assure the lender that you own the home and the lender’s mortgage is a valid lien, and it protects the lender if there is a problem with the title.
- Owner’s Title Insurance Policy — Paid by Seller and protects you in the event someone challenges your ownership of the home.
- Courier Fee — This covers the cost of transporting documents to complete the loan transaction as quickly as possible.
- FHA Up-Front Mortgage Insurance Premium (UPMIP) — If you have an FHA loan, you’ll be required to pay the UPMIP of 1.75% of the base loan amount. Often this expense is rolled this into the cost of the loan if you prefer. Does not Apply to conventional loans with 20% down-payment.
- Flood Determination or Life of Loan Coverage — This is paid to a third party to determine if the property is located in a flood zone. If the property is found to be located within a flood zone, you will need to buy flood insurance. The insurance, of course, is paid separately, most homes in WA-State are not required to have flood insurance.
- Home Inspection — You will likely get your own home inspection to verify the condition of a property and to check for home repairs that may be needed before closing. Based on the property, I might suggest more inspections, such as sewer scope inspection, well inspection, septic inspection, pest inspection, lead-based paint inspection (homes built before 1978), etc. These expenses are paid directly to the inspector at the time of the inspection.
- Home Owners Association (HOA) Transfer Fees — Only applies to properties that have HOA’s. The Seller will pay for this transfer which will show that the dues are paid current, what the dues are, a copy of the association financial statements, minutes and notices. The buyer should review these documents to determine if the Association has enough reserves in place to avert future special assessments, check to see if there are special assessments, legal action or any other items that might be of concern. Also included will be Association by-laws, rules and regulations and CC & Rs. The buyer might be charged a move-in fee ($200-$300) and next month/period payment.
- Recording Fees — A fee charged by your local recording office, usually city or county, for the recording of your ownership.
- Private Mortgage Insurance (PMI) — If you’re making a down payment that’s less than 20% of the home’s purchase price, chances are you’ll be required to pay PMI. If so, you may need to pay the first month’s PMI payment at closing.
- Transfer Taxes — This is the tax paid when the title passes from seller to buyer. In WA-state Buyers do not pay transfer taxes, however seller pays transfer tax, called excise tax.
- VA Funding Fee — If you have a VA loan, you may be required to pay a VA funding fee at closing (or you can roll this fee into the cost of the loan if you prefer). This is a percentage of the loan amount that the VA assesses to fund the VA home loan program, however some borrowers are exempt from this fee. The percentage depends on your type of service and the amount of your down payment. Here is a breakdown of the cost of the VA funding fee and a complete list of allowed fees for VA loans.
These are your expenses paid in advance.
- Homeowners’ Insurance — This covers possible damages to your home. Your first year’s insurance is often paid at closing.
- Property Tax — Typically, lenders will want any taxes due within 90 days of purchase by the loan services to be paid at closing.
- Prepaid Interest — Most lenders will ask you to prepay any interest that will accrue between closing and the date of your first mortgage payment.
- Attorney Fee — If you decide to hire an attorney to review the closing documents, paid directly to the attorney. This is not required. If you work for a large company, such as Microsoft, you might be enrolled in their ARAG group legal plan and the attorney can review these docs for free.
- Loan Discount Points — “Points” are prepaid interest. One point is one percent of your loan amount. This is a lump sum payment that lowers your monthly payment for the life of your loan.
- Survey Fee — This fee goes to a survey company to verify all property lines (starting at $3,000) and things like shared fences on the property. This is not required expense, however if you are purchasing a large parcel of land, it makes sense to verify property line. Also title company might require the survey for a large land parcel to issue title insurance.
- Home Warranty — At the beginning of the transaction, I provided a pamphlet from American Prefer Home Warranty, let me know couple of days before closing if you decide to purchase a home warranty. If you are purchasing a new construction, most builders will provide a min 1-year home warranty at no cost to the Buyer.