A buyer's closing costs include non-recurring and recurring expenses. Typically, the buyer's costs include mortgage insurance, homeowner's insurance, appraisal fees and property taxes, while the seller covers ownership transfer fees and pays a commission to their real estate agent
Below is an overview of closing fees:
- Loan Origination Fee: This fee covers the Lender’s administrative costs in processing the loan. It is generally a one-time fee and is generally expressed as percentage of the loan amount.
- Loan Discount: Often called “points”, a loan discount is a one-time charge used to adjust the yield on the loan to what market conditions demand. One point is equal to 1% of the loan amount.
- Appraisal Fee: This is one-time fee that pays for an appraisal, a statement of property value required on most loans. Appraisal is made by independent fee appraiser.
- Credit Report Fee: This one-time fee covers the cost of the credit report, which is processed by the independent credit reporting agency.
- Title Insurance Fees: There are two title policies that protect from the loss due to a defect in the title, a Buyer’s Title Policy that protects the new homeowner and a Lender’s Title Policy to protect the lender. These are both one-time fees.
- Miscellaneous Title Charges: The Title Company may charge fees for title search, title examination, document preparation, notary fees, and settlement or closing fees. These are all one-time charges.
- Document Preparation Fee: There may be a separate, one-time fee that covers preparation of the final legal papers, including the Note and the Deed of Trust.
- Prepaid Interest: Depending on the day of the month your loan closes, this charge may vary from the full month’s interest to just a few days interest. If your loan closes at the beginning of the month, you could pay up to the maximum amount. If your loan closes near the end of the month, you will only have to pay a few days interest.
- Private Mortgage Insurance (PMI): Depending on the amount of your down payment, you may be required to pay a monthly fee for mortgage insurance (which protects the lender against the loss due to foreclosure). You may also be required to put a certain amount for PMI into special reserve account (called an Impound Account) held by the lender.
- Taxes and Hazard Insurance: Depending on the month you close, property taxes will be prorated between Buyer and the Seller. You, Buyer, will also need to pay an entire year’s hazard insurance premium up front (Homeowner’s Insurance). In addition, you may be required to put a certain amount for taxes and insurance into a special reserve account (Escrow Account) held by lender.