Wednesday April 16, 2014
 
Some costs and fees go to third parties, some are state and local government fees that must be covered and some go to your lender.

Closing Costs Breakdown

With a long list of charges at settlement, it's important to know what the closing costs on a house are before you start to buy.

How much are closing costs?

The quick answer is 1.5% - 4% of the purchase price of the house. The biggest determining factor as to whether you get to pay the 1.5% or closer to the 4% is your credit and your knowledge of the loan process.

Do home sellers usually pay closing costs?

Sellers often pay for the buyers closing costs and is more a factor of the current market then anything else.

When it's a buyers market the percentage of loans closed with sellers paying some or all of the buyers closing costs can be huge.

When it's a sellers market the sellers have no need to negotiate with the buyers and closing costs can be hard to come by.

Where do they go? Some costs and fees go to third parties, some are state and local government fees that must be covered and some go to your lender.

Closing Costs Breakdown


Origination Fee 0.50% - 2.0% Mortgage Lender
Discount Fee 0.50% - 2.0% Mortgage Lender
Processing Fee $0 to $500 Negotiable - Mortgage Lender
Application Fee $0 to $350 Junk Fee
Underwriting Fee $300 to $600 Mortgage Lender
Appraisal $250 to $500 Mortgage Lender
Credit Report $15 to $35 Junk Fee above $35
Tax Service Fee $50 to $75 Mortgage Lender
Wire Transfer Fee $100 to $300 Title Company
Flood Determination Fee $15 to $30 Mortgage Lender
Courier Fee $50 to $75 Mortgage Lender
Closing or Escrow Fee $100 to $350 Title Company
Title Insurance Fee $400 to 1000 Title Company
Homeowners' Insurance $200 to $750 Insurance Company

The numbers 801, 802, 803, etc. next to each fee represent the corresponding line used on good faith estimates (GFE's).

Origination Fee - 801

The origination fee is charged for evaluating and preparing your mortgage loan.

A fee borrowers pay loan officers to financially compensate them for the role they play in evaluating, processing and approving their mortgage loan.  Your credit score and history will play a huge role in the amount of origination points a you pay.

Unlike discount points, origination points are not usually tax deductible.

Estimated cost: 0.5% to 2.0% of the loan amount

Discount Points - 802

Discount points are a one-time fee charged by the lender and are usually used to reduce the interest rate of your mortgage loan.  If you pay the points at closing, instead of financing them into your loan they are deductible on your income taxes in the year they are paid.  If you're purchasing or refinancing a second home, different deductions rules will apply. 

The best way to lower your interest rate is to have the seller pay the discount points if you're purchasing a home.

Estimated cost: 0% to 3% of the loan amount

Appraisal Fee - 803

The appraisal is done to ensure the loan will meet the lenders requirements with regards to loan-to-value (LTV).  This fee pays for a certified appraiser to go out to the home (usually)and write a detailed report on the current condition and value of the home.

Lenders are required by federal law (the Equal Credit "Opportunity Act") to furnish a copy of the appraisal to the borrower if the borrower requests a copy in writing.

Estimated cost: $250 to $500

Credit Report - 804

The credit report fee is charged to cover the cost of retrieving your credit, with scores included, so lenders can determine your credit worthiness.  Keep in mind though, it is illegal for lenders, mortgage bankers, mortgage brokers or banks to charge you more than they have been charged by the company providing the credit reports.

Estimated cost: $15 to $35 per couple

Lender's Inspection Fees - 805

LIF's are usually associated with new construction and are also called called a 442 or 1004D inspection. Since the property has not been finished when the first appraisal is completed, the 442 inspection verifies that construction is complete with carpeting and flooring installed and the inspectors have signed off.

Estimated costs: $175 to $325

806 and 807 do not exist on the Good Faith Estimate (GFE)
 
Mortgage Broker Fee - 808

This fee is outdated as no one we've heard about is still trying to charge this fee.  If you do run into someone charging the fee ask them to remove it or move on to another broker/bank.

Tax Service Fee - 809

The tax fee is paid to companies which do nothing but check to see that your taxes are paid.  If a tax lien does show up on your property they will notify your lender and take appropriate action.

Estimated cost: $50 to $75

Processing Fee - 810

The processing fee is generally charged to cover the cost of a processor.  This may be a person who is either salaried (in-house) or a contracted person who is usually paid by the loan and works for many different lenders or mortgage brokers.  The processor usually works directly with the loan officers and does most of the tedious work that's involved with getting your loan ready for the underwriters.

Estimated cost: $0 to $500

(The processing fee is usually negotiable)

Underwriting Fee - 811

The underwriting fee is charged by the lender to cover the cost of 1 or more persons to underwrite your loan.  These underwriters will go over every piece of documentation you have submitted to your loan officer.  Once it is determined that your loan does indeed fall between the guidelines set forth by the lender and all conditions have been met, the underwriter will give final approval on your loan.

Estimated cost: $300 to $600

(Some lenders may negotiate this fee, so please speak to your loan officer beforehand)

Wire Transfer Fee - 812

In this day and age funds are often transferred electronically.  If for instance, your lender electronically transfers the funds needed to close, your title company or settlement agent then you would be charged a Wire Service Fee.

Estimated cost:$25 to $50

Flood Determination Fee - 813

You'll need to pay this fee to find out whether your home is located in flood zone.  If your home is in a flood zone lenders cannot make a mortgage loan for your home unless you buy flood insurance. Your lender may charge a fee to find out whether the home is in a flood hazard area.

Estimated cost: $15

(This is not the cost for flood insurance.  Flood insurance would be in addition to your homeowner's insurance and may cost from $300 to $3,500, if required.)

Application fee

The application fee should never be charged on a residential mortgage loan.  The fee was charged decades ago before computers and the internet.  At the time, competition was low between banks, lenders and mortgage brokers, so those that could get away with charging the fee did so. 

Now with competition so fierce in the mortgage industry the only people charging the application fee are usually the ones trying to take advantage of borrowers.

Estimated cost: $100 to $350



Title Charges - 1100

 Closing or Escrow Fee - 1101

The closing/escrow fee is charged by the title company for opening and running the escrow account needed for the purchase or refinance of your property.

Estimated cost: $200 - $300

Documentation Preparation Fee - 1105

The doc. prep. fee covers paperwork the escrow company prepares for your closing, such as creating the closing statement and other documents not prepared for by the lender.

Estimated cost: $125 to $250

Notary Fee - 1106

This is charged when a notary republic is needed to witness and authenticate documents that you will need to sign at the close of your loan.

Estimate cost: $5 to $100

Attorney Fee - 1107

If your having an attorney represent you, then his fee would be listed here.

Estimated cost: $250 and up

  Title insurance 1108

Most lenders require a title insurance policy, this policy insures the lender against any errors made during the title search.  If future problems with the title due arise, the insurance covers the lender’s investment in your mortgage.

The cost of the title policy is usually based on the loan amount and is most often paid by the buyer.  However, if negotiated the seller can pay all or part of the cost.  This title insurance policy protects only the lender.  To protect yourself against future title problems, you may want to look at purchasing an “owner’s” title insurance policy.

Estimated cost:  up to 1% of the loan amount

(Title insurance and services vary by state.  For example, a lender’s policy on a $300,000 loan can range from $500 in one state to $2600 in another.



Government Recording & Transfer Charges - 1200

Amounts Paid to State and Local Governments

Depending on what state you live in you may be required to pay recording fees, transfer fees and/or property taxes charged by local and state governments.  Most of the fees, such as recording fees & transfer fees, are one-time fees.  Although you can not avoid paying these taxes and fees, you may be able to negotiate with the seller to pay some of the costs.

Estimated cost:  up to 1.25% of the loan amount



Additional Settlement Charges - 1300

Pest Inspection - 1302

The lender may require you to have a termite inspection and/or an inspection showing the structural condition of the property.  If you live in a rural area you may be asked to have your septic system tested to check its general condition and water tested to ensure the condition of the well and water system will maintain a supply of water which is adequate for the house.

If water quality is an issue, the local county health department and/or lender may require a water quality test as well.

Estimated costs: $150 to $500



Items Required by Lender to be Paid in Advance - 900

Prepaid Interest - 901

Your first regular mortgage payment is usually due 4 to 8 weeks after you close (for example, if you close in April, your first regular payment will not be due until June 1st.  The June payment covers the cost of borrowing the money for the previous month (May).

Interest does however start to accumulate as soon as you close.  The lender will calculate how much interest you owe for the month in which you closed (for example, if you closed on April 19, you would owe interest for 11 days as part of your closing cost).

Estimated cost: Depends on a few factors and is different for every borrower

Loan amount, interest rate and the number of days that must be paid for

  • A $240,000 loan at 6% for 15 days, would be around $600

  • A $285,000 loan at 6% for 15 days, would be around $712

Mortgage Insurance Premium - 902

Federal Housing Authority (FHA) requires you to pay mortgage insurance premium for its programs.  You can expect to pay an upfront  premium of 1.50% of the loan amount.  This is paid at closing/settlement and can be financed into the mortgage.

You're also going to pay a monthly mortgage insurance payment amount included in the PITI (principle, interest, taxes and insurance) of .50%.  If your purchasing a condos you are not required to pay the upfront mortgage insurance payments, only the monthly insurance payment.

If you've ever had a government loan it's a good idea to check the U.S. Department of Housing and Urban Development refund page. You may have a substantial refund waiting for you to claim.

Click here for direct access to the (HUD) refund page.

Homeowner’s Insurance - 903

The lender will require that you have a homeowner’s insurance policy (hazard insurance) in effect when you close on your loan.  The policy protects yourself and the lender against physical damage to the house by fire, wind, vandalism, and other causes.  The policy insures the lender’s investment will be secure even if the house were to be destroyed.

If you buy a condominium, the hazard insurance may be part of your monthly condominium fee, however this usually only covers the outer skeleton of your condominium.  You should still purchase homeowner’s insurance to cover interior walls plus your furnishings and valuables.

Estimated cost: $300 to $2,000

Veterans Affairs (VA) Funding Fee - 905

The veterans affair fee is currently just over two percent on no down payment loans for a first-time use. The funding fee for second time users who do not make a down payment is over three percent.

The basic idea behind the higher fee for second time users is based on two reasons.  One is the fact these veterans have previously used their benefit once already, and second they've had a chance to accumulate equity or save money towards a down payment on their next house.

Percent Down Veteran Fee National Guard Reserve Fee
0% to 4.99% 2.00% 2.75%
5% to 9.99% 1.50% 2.25%
10% and up 1.25% 2.00%
  • Second use with less than 5% down requires 3% funding fee.

  • No funding fee is required if you are a disabled veteran.

  • The funding fee may be financed into the loan.

Reserves Deposited with Lender - 1000

Your reserve account is made up of 2 to 6 months worth of payments on reoccurring charges.

  • Hazard Insurance - Homeowners Insurance - 1101

  • Mortgage Insurance - 1102

  • School Tax - 1103

  • Taxes and Assessments - 1104

  • Flood Insurance - 1105

For additional help with "closing costs on your house" try our free
closing cost calculator

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