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Closing costs amount to approximately 11% of
the total sales price of a home, according to the California Land Title
Association. These charges usually include a real estate commission, loan fee,
escrow charge, title insurance premium, pest and other inspections, and costs
for other services provided during the closing process. Below is a list and
definition of common closing costs.
Sales/Broker's Commission
The
commission is typically a percentage of the selling price of the home and
usually paid by the seller. Often two Realtors®,
the buyer's agent and the seller's agent, and their respective brokerage
companies split the commission.
Loan Fees
These are fees that the
lender(s) charges to process, approve and make the mortgage loan.
Loan Origination Fee
Sometimes
called a "point" or "discount points", a loan discount is a one-time charge
imposed by the lender or broker to lower the interest rate at which the lender
or broker would otherwise offer the loan to you. Each "point" is equal to one
percent of the loan amount.
Appraisal Fee
The charge, which may
vary significantly for different properties, pays for a statement of property
value for the lender, made by an independent appraiser or by a member of the
lender's staff. The appraiser inspects the house and the neighborhood, and
considers sales prices of comparable houses and other factors in determining
the value. The appraisal does not, however, necessarily detect or discuss
defects in the property or title to the property. Your lender may provide a
copy of the appraisal to you upon request although they may not be required to
do so unless specified in state law.
Credit Report Fee
The cost for a
credit report, which shows your credit history. The lender uses the information
in a credit report to help decide whether or not to approve your loan and how
much money to lend you.
Lender's Inspection Fee
This charge
covers inspections, often of newly constructed housing, made by employees of
your lender or by an outside inspector.
Mortgage Insurance Application Fee
The fee covers the processing of an application for mortgage insurance which
may be required on certain home loans.
Assumption Fee
A fee which is
charged when a buyer "assumes" or takes over the duty to pay the seller's
existing loan.
Interest
Lenders usually require
that borrowers pay at the close of escrow the interest that accrues on the loan
from the date of funding to the beginning of the period covered by the first
monthly payment.
PMI (Mortgage Insurance)
Mortgage
insurance protects the lender from loss due to payment default by the borrower.
The lender may require the first premium or a lump sum premium, covering the
life of the loan in advance, in escrow. With this insurance protection, the
lender is willing to make a larger loan, thus reducing your down payment
requirements.
Hazard Insurance Premium
The premium
prepayment is for insurance for you and the lender against loss due to fire,
windstorm, and natural hazards. The coverage may be included in a Homeowner's
Policy which insures against additional risks such as personal liability and
theft. Often the first year's premium is prepaid in escrow. The policy may not
protect against loss caused by flooding. If your mortgage is federally insured
and your property is within a special flood hazard area identified by FEMA, you
may be required by federal law to carry flood insurance on your home.
Title Charges
These may cover a
variety of services performed by title companies and others and include fees
directly related to the transfer of title and fees for recording, transfer tax,
notaries, etc. The borrower may pay all, a part or none of the cost for owner's
and lender's title insurance depending on the terms of the sales contract or
local custom. A one-time premium may be charged for the lender's title policy
which protects the lender against loss due to problems or defects in connection
with the title. The insurance is usually written for the amount of the mortgage
loan. The borrower will be responsible for all, part or none of the cost
depending on the sales contract or local custom.
Escrow Services
The fee for the
services preformed by the escrow officer. Typically responsibility for payment
of this fee is negotiated between buyer and seller when the sales contract is
signed.
Recording And Transfer Fees
The
sales contract or local custom determines how fees are split between buyer and
seller. The buyer usually pays the fees for legally recording the new deed and
mortgage loan. The county charges a transfer tax and many cities also have
transfer tax fees.
Pest And Other Inspections
This fee
is to cover inspections for termites or other pest infestation of the home,
payment determined by sales contract or custom.
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