LOAN-RELATED
CLOSING COSTS
Loan Origination Fee
This covers the administrative expenses in setting-up and processing
the loan. The loan origination fee may be a percentage of the mortgage
amount.
Points (optional)
An option for the home buyer is to pay points to lower the interest
rate at which the loan will be repaid. Each point equals 1 percent
of the mortgage amount. For example: on a $150,000 loan, 1 point
would equal $1,500.
Appraisal Fee
The fee for having the house appraised may be incorporated into
the closing costs or payment may be required by the lender at the
time the loan application is submitted.
Credit Report
The lender uses a credit report to determine the creditworthiness
of the loan applicant. This fee is often paid when the loan application
is submitted.
Interest Payment
Typically the buyer is required to pay interest on the mortgage
loan to cover the time between the closing date and when the first
mortgage payment period begins. For example: If closing is on May
15. Your first monthly payment begins to accrue interest on June
1 with your first mortgage payment due July 1. At closing an interest
payment covering the accrual period between May 15 and May 31 may
be required.
Escrow Account
At closing a payment may be required to fund the escrow account
if the lender is paying home insurance, property taxes and/or other
expenses out of the escrow account.
TAX-RELATED CLOSING COSTS
Property Taxes
This is the one closing cost that is often prorated between the
buyer and seller. If the seller has already paid the annual property
taxes, the buyer typically reimburses the seller for the period
in which the buyer will be occupying the property. Likewise, if
the taxes have not yet been paid, the seller typically reimburses
the buyer for the period in which the seller occupied the property.
Transfer Taxes and Recording Fees
This is the cost for transferring ownership of the property and
recording the purchase documents. The fee is often calculated as
a percentage of the sales price.
INSURANCE CLOSING COSTS
Homeowner's Insurance
This insurance covers replacement costs for damages caused by fire,
wind, flood, or other disaster's that might affect the value of
the property. Typically, the insurance also includes personal liability
and theft coverage.
Private
Mortgage Insurance (PMI)
Insurance required for conventional mortgage loans when the borrower's
down payment on the house is less than 20 percent of the loan value.
Title
Insurance
This policy protects both the buyer and lender by insuring a clear
chain of title. (In other words, it insures that that the person
who sells the house has the legal right to do so.)
