Understanding All The Closing Cost Fees
During closing, there are a number of fees you need to be prepared for. It's important for you to understand closing cost fees and how to budget for them.
When closing on a loan, there are a number of costs you will need to be prepared for. When I bought my first home, I was shocked as to the many “middle-man” closing cost fees that are part of the home buying process. It’s important for you to understand closing cost fees and how to budget for them.
Listed below are the closing costs fees you can expect when you take out a loan. Though not every one of these will apply in every situation, they are all typical for most loans.
- In order to determine the market value of your property, you will have to pay a 3rd part appraiser to provide you with an appraisal.
Credit Report Fee
- You will need your credit report before you close on a loan and will have to pay a 3rd party to retrieve it for you.
Tax Service Fee
- Before you are able to complete your loan, you will need to ensure that your property taxes have been paid and that there are no existing liens on your property. To do this, you will have to hire a 3rd party tax professional and pay their fee.
- The origination fee is a fee that is charged by your lender for processing, underwriting, and closing your loan.
- If you choose to have an attorney review the documents pertaining to your loan, you will have to pay their fee as well. Attorneys can be hired to prepare a purchase and sale agreement for you, examine your title, and help you close your loan. Whether their services are worth the extra fee is entirely up to you.
- The recording fee is a fee you pay to a 3rd party register of deeds for them to formally record your purchase so that it becomes available on public record.
Title insurance is split into two types, one of which is mandatory and one of which is optional. These two types are:
Lender’s Title Insurance
Lender’s title insurance is mandatory, and it serves to protect the lender in the situation where an issue with the title is discovered after the loan has been closed.
Buyer’s Title Insurance
Buyer’s title insurance is optional, and, like lender’s title insurance, it is there in the event that an issue is discovered with the title after the loan has closed. Buyer’s title insurance, though, protects the buyer in such an event.
Discount points are an upfront closing cost fee paid to the lender in order to decrease a loan’s interest rate, and they most often save the buyer money in the long run. For example, a buyer may pay $2,000 upfront to lower their interest from 5.125% to 4.875%. Though this upfront amount can be hard to stomach, you should definitely consider purchasing discount points if given the option.
EXAMPLE (not including taxes and insurance)
|0 Points||1 Points||2 Points|
|Cost per point||$0||$2,000||$4,000|
|Monthly payment savings||$0||$30.55||$45.68|
|Break even||N/A||65.4 months||87.5 months|
|Total Savings over the life of a 30 yr loan||$0||$9,000.70||$12,444.54|
The last type of closing cost fees you will want to look out for is prepaid charges. Prepaid charges can come in the form of paying the interest through the end of the first month upfront, hazard insurance, taxes, private mortgage insurance, and other charges specific to your loan that will need to be paid upfront in the form of a prepaid charge.
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