Closing Cost Guide

In every real estate settlement, there are cost to the both buyer and seller referred to as “Closing Cost”. Below is a breakdown of Closing cost and the Closing Process

The Consumer Financial Protection Bureau requires that buyers receive the Closing Disclosure, outlining loan costs, among other fees, and information pertinent to the borrower for review, no later than 3 days before closing. The fees on this disclosure are compared to the initial estimate provided at time of mortgage loan application.

Settlement will take place at a time and place convenient to you. You should be prepared with a Cashier’s check for amount of cash required on the “Closing Disclosure” statement. Personal checks are not normally accepted for large sums. However, you should have your checkbook for any last-minute adjustments.

All borrowers must have two forms of government issued ID. The first must include a photo like a driver’s license or a passport. The other should have your name printed on it (like a social security card or credit card).

All AskChristee Modules estimate Closing Cost based upon State and Local tax rates.

Below is a brief explanation for typical fees and adjustments:

1. Real Estate Commission. The seller typically pays these fees.

2. Loan Originations Fees. These charges are expressed as a percent of the loan or purchase price. A one-point loan origination fee equals one percent of the loan amount. Loan origination fees are negotiated with the Lender and are normally paid by the buyer.

3. Loan Discount Fees. Loan discount fees equal one percent of the loan amount and are negotiated with the Lender. A loan with discount points should have a lower interest rate. Loan discount fees can be paid by either the buyer or seller.

4. Appraisal Fee. The cost charged by the Lender to have the property appraised. If the charge was not paid at time of mortgage application, it will be collected at closing.

5. Credit Report Fee. Fee charged by Lender to acquire a Tri-Merge credit report on all borrowers. Generally, paid for at time of mortgage application. Otherwise, the fee will be collected at time of closing.

6. Tax Service Fee. If your new loan payment includes payment into an escrow account for future payment of property taxes, then you may see this charge at time of closing. A tax service fee is a closing cost that is collected by a lender to ensure that property tax statements are sent to the Lender so they may pay the taxes in a timely manner.

7. Flood Certification. A fee, typically less than $25, charged to obtain the government-required document to determine whether the subject property is located in a flood plain. Federal Emergency Management Agency (FEMA) flood maps are examined using the address or geographic coordinates of the property. If the property is located in a flood plain, then the Lender will require a Flood Insurance policy which is payable annually and will be escrowed by the Lender for payment.

8. Prepaid Interest. Your first mortgage payment will be schedule for the first full month after closing. If you close on January 15th, your first mortgage payment will be on March 1st. In this example, the March payment will cover interest for the month of February, which would leave interest for January unpaid (January 15 to January 31). Lenders are allowed to collect this unpaid interest in advance at time of closing.

9. Homeowners Insurance. Generally, the buyer will be required to provide evidence that the first year of Homeowners Insurance has been paid prior to closing. Otherwise, the premium will be collected at closing. When the policy is scheduled for renewal, the Lender will pay the renewal premium from buyers escrow account. If mortgage insurance is required it will be treated in the same manner as Homeowners Insurance.

10. Property Taxes. The contract of sale will set forth the terms for property tax adjustment. Generally, the buyer will reimburse the seller for taxes paid in advance. If you are closing on March 1st and the property taxes have been paid thru June, then the buyer will reimburse the seller for four months (March – June).

11. Lender Reserves. Also referred to as the ‘Escrow’ account. At closing, the buyer will make the initial deposits into the account established by the Lender. The initial deposit(s) will ensure that when items such as homeowners’ insurance and property taxes become payable there will be sufficient funds available to pay them.

12. Title Company Fees. Title company investigates the title to the property and issues a title insurance policy. Title insurance is the most prevalent way to insure the ‘marketability’ of the Title. However, there are other means available which are rarely used. The Lender will require a ‘Lenders’ title insurance policy and you will have the option to buy a ‘owners’ title insurance policy. The title company prepares the deed to convey (transfer) the title to the property from the grantor (seller) to you the grantee (buyer). Below is a list of potential fees charged by title companies, fees will vary between title companies and not all title companies charge all the fees listed below.

a Closing Fee – fee for reviewing the abstract of title and conducting the settlement.

b. Abstract Fee – report showing land records history of ownership and liens of record.

c. Document Preparation Fee – the title company prepares the deed, the Lender prepares and forwards documents such as the Note, Deed of Trust, or Mortgage and other Lender disclosures or exhibits. Many title companies do not charge a document prep fee.

d. Recording Service Fees – not a required fee.

e. Electronic Fees – not a required fee.

f. Wire / Courier Fee – should be a minimal fee.

g. Notary Fees – generally, the person conducting the closing is a notary so it is not a required fee.

h. Closing Protection Letter – referred to as the CPL is a document protecting the Lender from any fraudulent behavior of Title Company employees. We recommend you shop this fee. Not required.

i. Electronic Storage Fee – not a required fee.

j. Title Insurance Premium – Title insurance rates are controlled by the State (Insurance Commissioner or similar Department). Title companies receive a commission based upon the dollar amount of the title insurance policy.

Some Title companies cannot resist the opportunity to charge extra or ‘junk’ fees. You may encounter other fees with imaginative names such as email or other electronic fees. We recommend you compare fees between Title companies.

13. Transfer Taxes and Recordation Fees. Normally, the purchase agreement (contract) will stipulate how these charges are to be shared between the buyer and seller. Typically, these charges are shared in accordance with State custom or Statue.

Transfer Tax. Imposed on a State and/or local basis as a fee for transferring the deed. Generally, the transfer tax is based upon the purchase price.

Recordation Tax. This fee may also be called documentary stamps. This tax may either be based upon the purchase price or the mortgage amount.

14. Recording Fees. Each recording jurisdiction may impose a fee for recording documents such the deed, deed of trust, or mortgage. The fee may be a flat fee or based upon the total number of pages to be recorded. This fee should not be confused with Title company fee to record the documents.

15. Additional Buyer Charges. Any unpaid charges, such as Home Inspection or Pest Inspection, will be collected at closing.

The total of the above charges will be the buyers’ closing cost.

16. Down Payment. The amount of required down payment is the difference between the purchase price and the loan amount.

17. Buyer Credits. The buyer will be given credit for the ‘earnest money deposit’ – amount of money deposited with the sales contract. Additionally, the buyer will be given credit for any seller or Lender credits.

18. Cash Required. The total amount required at time of closing is equal to Closing Cost + Down Payment minus any credits to the buyer. From the above, that would mean [1 through 16] minus 17.