Closing your home should be exciting, and once you understand the process and how it works, it can be. Here you will find a list of Costs commonly associated with closing on a Home.
Mortgage Loan Fees – Direct Loan Costs (Section 800) Most people need to obtain a mortgage loan to pay for their home. There are often fees associated with obtaining a loan such as the ones listed below.
These fees include ones paid directly to the lender or the lender’s designated payee. Fees payable to third-party loan originators (typically Mortgage Brokers) are also shown in this section of the HUD-1.
- This fee covers the lender’s cost of obtaining financing and administration for your loan.
- To approve your loan your lender has to obtain an estimate of what your home is really worth.
Lender Inspection Fees
- If the lender requires certain inspections to take place before closing (particularly where new construction or recent repairs are involved),
Yield Spread Premium (YSP)
- This is a fee that the funding lender may pay directly to the mortgage broker or other third-party loan originator. This fee is for securing a borrower on behalf of the funding lender at rate and terms agreed upon which may be higher than what is called “at par.” The fee is sometimes called a “Par-Plus Pricing” fee. While this fee is not paid by the borrower (it typically is shown as “POC” by the Lender”), it must be shown on the HUD-1 if the mortgage broker is receiving such compensation.
- This is a one-time fee charged by the lender in order to give you a lower interest rate on your loan.
Credit Report Fee
- Mortgage lenders require a credit report to determine whether or not you are eligible (have good enough credit) for a loan, how much they will lend you and at what interest rate.
Underwriting Fees and Processing Fees
- Lender Services associated with the Mortgage Loan Process.
Mortgage Broker Fee
- This fee covers the costs of services of a mortgage broker if one is engaged by the borrower to help them shop for mortgage financing. Mortgage brokers typically present the borrower’s application to a variety of funding sources before helping the borrower make their final selection.
Items required by the Lender to be paid in advance (Section 900)
There are certain items the lender may require you to pay at the time of closing or in advance of the actual closing date. These could include:
- Lenders usually require payment of loan interest from and including the day of closing through the end of the month of closing.
Hazard Insurance Premium
- Often times lenders require payment of one year’s hazard insurance, commonly referred to as homeowner’s insurance, against fire, windstorms and natural hazards. In order to bind the coverage, the premium is often paid in advance of closing.
Mortgage Insurance Premium
- At the settlement, you may be required to pay your first year’s mortgage insurance premium, or a lump sum premium that covers the life of the loan. This fee is payable to a Private Mortgage Insurance Company. If the loan is being federally insured (FHA) or (VA), the mortgage insurance or funding fees for those government loan programs would be charged here.
- Depending on the location of your home, flood insurance may be required and payment of the first year’s premium must be made in advance of closing.
Escrows / Impounds / Reserves (Section 1000)
Although the lender isn’t required to provide an estimate of the reserves they will be collecting, it is important that you be aware of whether the lender will or will not be “escrowing” for taxes, mortgage insurance (if any), hazard and flood insurance.
Title and Closing Charges (Section 1100)
These fees cover the administrative costs of a title search, title examination, issuance of the title commitment/binder and final title insurance policy(ies).
Settlement / Closing Fee
- A fee must be paid to a settlement agent who has prepared documents, calculated figures, and oversees proper execution of closing documents.
- Some settlement agents charge for the cost of preparing legal papers such as the mortgage, deed of trust, note or deed and/or other loan and title documentation.
- There are two kinds of title insurance policies: Loan and Owner’s policies. The cost for the Loan Policy is based on the loan amount and the cost for the Owner’s Policy is based on the sales price of the home.
Abstract of Title, Search
- Title Examination, Title Insurance Commitment or Binder – In order to ensure that there are no pre-existing problems with your property, a title insurance professional must perform a title search and produce documentation on the home’s title.
Courier Services and Wire Transfer Fees
- Services used in Connection with the processing and closing of the file
Recording/Government Filing Fees (Section 1200)
Buying a home is not only a big investment; it is also a matter of public record. The property information and the loan information are required to be filed at the county courthouse or other local government recording office.
- The recording fee is paid to a government body which enters an official record of the change of ownership.
Transfer Taxes, Document or Transaction Stamps
- These are government charges based on the amount of the mortgage and, often, also on the purchase price. Depending on your location, there could be a city, county or state tax involved, or some combination.
Other, Miscellaneous Charges (Section 1300)
- When homes are sold an inspection is often recommended and in some cases the contract may even be contingent upon an acceptable inspection report. This fee covers the cost of an inspector to check the dwelling for any structural problems or issues.
- Property is researched and certified as to whether it is in a Flood Zone Area
- Lenders and title insurers often require a surveyor to conduct a survey of your property to define the property size and boundaries and to see if any part of the building or other improvements are “encroaching” on a neighbor’s yard — or the other way around. They are also looking to see if there are any setback violations or other material matters that are considered problematic.