Buying a home will cost you more than just the seller's asking price. The long list of other fees, taxes and extras that you will need to pay before you take ownership of the home are called closing costs. Learn more about them here.
Closings Costs, Taxes and Fees
Loan origination fees
Also known as points, this is money paid to the lender at the time you take out the loan, usually 1 to 2 percent of the overall loan proceeds. Points should be discussed with your lender when negotiating your mortgage interest rate. Borrowers will usually get a lower rate when paying more points, and a slightly higher rate for loans with fewer or no points.
Credit report fee
Each of the three major credit bureaus will charge your lender a fee for your credit report. This will often be passed down to you. Sometimes this is paid when you apply, sometimes it is charged at closing.
For many reasons, your lender will want to know the true market value of the home that they're lending you money for (and the home that they'll take if you fail to pay back the loan) so they will have an appraisal done. An appraisal is an expert assessment of the home's value, and can cost several hundred dollars. If you pay for an appraisal, you are usually entitled to a copy for your records.
For the same reason they may require an inspection, but not always.
There are several types of insurance that can be associated with your settlement. One, is your homeowners insurance which protects the home against accidents and other damage. Two, mortgage insurance protects your lender against losses in the event that you default on the loan. Finally, there is title insurance, which protects both you and your lender in the event that a third party can claim legitimate ownership of the property.
Your lender can require that they collect upfront premiums for any of these policies to protect the collateral value of the home or minimize their potential losses. This money goes to the respective insurance providers to ensure that the policies are in good standing for several months or even a full year.
Property taxes and other government fees
When a property changes hands, an official record of the transaction must be recorded by the state or local government, and there will be taxes and fees paid for this service. You may also be charged a flat fee for government tax stamps. If the previous owners have already paid the local property taxes for a given period, you may be required to reimburse them.
Escrow is the term used to describe the money that you pay and that your lender holds for payment of taxes and insurance on the home. There may be fees associated with the management of this escrow account.
If the sales transaction is sufficiently complex, you may need to engage an attorney and paid a fee for her services. Other fees may include a land survey, termite inspection, lead based paint inspection, and radon testing.
Other Closing Cost Issues
The good-faith estimate
Now that you know all about closing costs, how can you be sure not to get taken for a ride at the settlement table? Easy. Your mortgage banker is required by law to provide you with a written breakdown of their estimate of all your closing costs within three days of your applying for a loan.
Note that this is just an estimate, and many variables can change between your application and the time of the loan closing. However, you should read this document carefully, have your agent or attorney review it as well, and dispute any charges that seem unreasonably high or otherwise untoward.
Closing costs paid by seller
When the housing market is slumping and sellers really want to move a property, they may actually pay some (or in desperate times, all) of your closing costs for you. They may even announce this in the property's marketing materials. If you think you have a strong negotiating position you can have your buyer's agent ask the seller and their agent about that possibility.
Other Buyers Guide Topics
Jump back for the index of home settlement topics.
Other Web Info
The Department of Housing and Urban Development's list of potential closing costs and settlement fees on their website.