In addition to the purchase price of a property, there are other fees and expenses that are required to be paid in connection with the transaction. As many of these fees and costs are paid at closing, we refer to them collectively as closing costs.
Closing costs can vary based on the transaction, financing, and what was required during the closing process. In this discussion, we will walk through a few of the most common closing costs encountered in a typical residential real estate transaction.
If the buyer is obtaining financing, typically a mortgage, in order to purchase the house, these are typical fees the buyer will likely pay. These fees are generally set and controlled by your lender and should be detailed in your Closing Disclosure. Examples of common lender fees include:
Application fee: this is the fee associated with the application for a mortgage.
Appraisal fee: the lender will order an appraisal of the property to determine the fair market value (FMV) of the property for the purposes of the loan. The fees associated with obtaining the appraisal are passed on to the buyer. The cost of the appraisal will vary by state and county.
Credit report fee: this is the fee associated with pulling and analyzing the buyer’s credit report.
Origination fee: this is the fee charged by the lender for processing the buyer’s application.
Prepaid interest: this is a payment for the amount of interest covering the month of closing. Interest is then paid as part of monthly loan payments.
Mortgage insurance payments: In some cases, typically involving FHA or low down payment loans, the lender may require mortgage insurance. The first payment on this insurance would be paid at closing.
Underwriting fee: this is the fee associated with the loan underwriting process, which involves assessing the borrower’s credit, finances, income, and employment to determine the risk associated with issuing the loan.
Escrow deposit: lenders typically require two months of mortgage insurance payments to be deposited in an escrow account. Lenders may also require a certain number of monthly property tax payments be deposited as well depending on the date the taxes are due.
There are also common fees that arise from the closing process itself. These fees include:
Attorney fees: if attorneys are involved in the process, either drafting or reviewing agreements or directly overseeing closing as required in some states, there may be attorney’s fees paid at closing.
Closing or escrow fees: these are the fees charged by the professional or company overseeing the closing process, which could be the title company, escrow company, or attorney, depending on the state of the transaction.
Courier/delivery fees: if the closing documents are being signed by hand, a courier may be needed to deliver documents to the parties. These fees may also apply to delivery by a carrier such as Fedex or UPS. This fee would cover the courier’s or carrier’s services.
Title search fee: this is the fee to conduct the title search in order to determine what defects or encumbrances need to be cleared in order for a title insurance policy to be issued.
Title insurance: these are the one-time premiums associated with the lender and owner title insurance policies.
Property taxes: buyers may pay a pro-rated property tax amount set by the terms of the purchase agreement and/or what is customary in the state of the transaction. Sellers will usually be required to pay any amount owed but unpaid prior to closing.
Recording fee: this is the fee associated with recording the transaction documents, including the deed, with the proper government authority, often the county. Certain states also collect a tax for the recording of deeds and mortgages.
Survey fee: this is the fee to obtain a survey of the property, in order to set boundary lines. Surveys are not always required. Where surveys are ordered, receiving the survey can take time due to certain factors, primarily weather and the time of the year the closing occurs.
These are other miscellaneous fees often paid at closing.
Real estate commissions: these are the commissions paid to the real estate agents who represented the buyer and seller during the transaction.
Homeowners association (HOA) fees: HOA fees associated with the transfer of the home in the planned community, as well as any dues currently payable. Certain HOAs also collect upfront non-refundable working capital. HOA fees are provided in an estoppel letter which can take up to 10 business days to obtain.
Homeowner’s insurance: often buyers will be required to prepay a year’s HOI premium at closing.
Closing costs can include a number of different fees, each with its own cost. It is important to pay attention to your settlement statement and closing disclosure in order to understand all the costs and fees associated with your transaction and ensure they are allocated correctly as detailed by the purchase agreement.
The information provided in Peak Title Professionals, does not, and is not intended to, constitute legal advice. All content is for general informational purposes only and is not intended to provide a complete description of the subject matter. Specific processes will vary based on applicable law. The title and closing process will be handled by a third-party attorney to the extent required by law. Product offerings vary by jurisdiction and are not available or solicited in any state where we are not licensed.
