Mortgage Advice

Closing Costs Disclosed

May 20, 2013

Closing day is a cause for celebration. After hours of house hunting, homebuyers who have found “the one” are one step closer to sealing the deal and becoming happy homeowners. But before the celebration can commence and house keys can be handed over, there are few things homebuyers need to be prepared for, including closing costs.

While it’s a term you’ve probably heard before, closing costs can cause confusion for even the savviest homebuyers. To help eliminate the confusion that accompanies closing costs, here is what you can expect when closing day comes.  

Closing costs can vary depending on your location, agent and lender, and they typically range anywhere between 1 to 7% of the purchase price. While some costs are associated with processing a mortgage loan, other fees–such as inspection and appraisal–are directly related to the home itself.

At Ross Mortgage, we strongly believe every customer has the right to know exactly what is expected of him or her on closing day. By providing our customers with an estimated cash-to-close worksheet at the beginning of the mortgage process that lists the costs associated with closing, they can come to the closing table with confidence in knowing exactly what they’re paying for.

In addition to providing customers with an estimated cash-to-close worksheet, at formal application we provide customers with a Good Faith Estimate that also lists fees and costs associated with the loan. Here is a list of common closing costs and their associated fees:

Appraisal fees are required for approval and are used to determine the actual value of the house. Appraisal fees vary based upon the price of the property and typically cost $350 to $400.

Closing fees are essentially a document prep fee charged by the title company to close the transaction and can range anywhere from $99 to $600.

Compliance inspection fees are only required on new construction homes or for repairs required by the appraiser and can range anywhere between $75 to $150.

Discount points can be used to lower the interest rate and are calculated as a percentage of the loan amount.

Flood certification fees are required to verify if a property is in a flood zone and typically cost $25.

Origination fees or application fees, also known as processing fees or underwriting fees, are charged by the lender for preparing your mortgage loan and can range anywhere between 0 to 1% of the loan amount.

Owners title insurance is typically a seller-paid item that starts around $25. This insurance is used to protect the new buyer from any errors in the title not found during the initial title search, such as errors or omissions in the deed, undisclosed heirs, mistakes in examining records, etc.

Mortgage title insurance is similar to owner’s title insurance in that it is used to protect the mortgage lender from any errors in the title not found during the initial title search. These fees usually start around $175.

Pest inspection fees are usually only required for VA loans and can cost $75 to $125.

Real estate transaction fees are charged by the buyer’s real estate agent and can range anywhere from $0 to $595.

Recording fees are charged by the county for placing the real estate transaction on public record. These fees typically range from $15 to $125.

Tax service fees are used to ensure that property taxes are paid over the life of the loan and costs $75.

Transfer tax fees are paid to the county for transferring the deed of title. These fees are typically paid for by the seller, unless the buyer is utilizing a Fannie Mae and Freddie Mac program, and usually costs .86% of the home’s purchase price.

Pre-paid Items

In addition to the closing costs listed above, lenders will also require buyers to account for pre-paid items on closing day. Separate from closing costs, pre-paid items are used to cover the first 13 months of property taxes and insurance.

While most people only think to shop around for the best rates, it’s also important to factor the price of closing costs into your decision. When shopping for a mortgage lender, be sure to ask for a Good Faith Estimate. This document will provide a list of estimated fees required to obtain a mortgage loan. Although the Good Faith Estimate is not a fully comprehensive list, lenders are required to fully disclose all closing costs on the HUD-1 Settlement Statement prior to closing the deal.

If you have questions concerning closing costs, please leave a comment below, or call me directly at 248.505.8861.

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