One thing I hear often causes a little anxiety for buyers and sellers is that you don't see your final settlement statements until a few days before closing. Given that this is an important transaction with significant financial implications, people are anxious when they can't see the final financials until so close to closing. Certainly, lenders can provide estimates of their fees and costs and title companies can provide estimates of other closing costs, but some things (taxes, HOA fees, etc) may not be available until closer to closing, which is why it is delayed. In addition to having the amounts, people are often also curious about what all the different fees are. Here is a quick guide to try to help with that.
Closing costs are made up of the fees associated with
1) purchasing a home
2) borrowing money, and
3) preparing paperwork to finalize the sale.
Your total closing costs will vary depending on where your new home is located, what type of property you are buying, the price of your home and the complexity of the transaction.
Taxes and other local fees:
Charges will vary according to local government requirements. Some may demand that property taxes be pro-rated according to when you officially own your home. You may also be required to pay personal property taxes, homeowner’s association dues, and other assessments that are specific to the area that you are moving into.
Property taxes: Usually six months of county property taxes. The buyer is responsible for this from the close date forward, the seller is responsible up to closing.
Transfer tax: This tax is collected in some localities whenever property changes hands or a mortgage loan is made, can be quite large and are set by state and/or local governments. City, county and/or state tax stamps may have to be purchased as well.
Costs associated with the mortgage:
This generally includes a variety of fees such as the loan origination fee, the appraisal fee and the cost of credit reports. Other related closing fees may include hazard and mortgage insurance, and interest accrued on the mortgage between closing date and the end of the month.
Credit report: This fee covers the cost of 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. [Buyer Paid]
Origination: If someone is taking our a mortgage to help pay for their home, they will see this fee. It is the fee the lender and any mortgage broker charges the borrower for making the mortgage loan. Origination services include taking and processing your loan application, underwriting and funding the loan, and other administrative services. [Buyer Paid]
Points: Points are a percentage of a loan amount. For example, when a loan officer talks about one point on a $100,000 loan, this is 1 percent of the loan, which equals $1,000. Amounts can vary significantly, from 0.5 to 3 points on the total mortgage amount. This is a one-time charge that is fully deductible as mortgage interest. Lenders offer different interest rates on loans with different points. You can make three main choices about points. You can decide you don’t want to pay or receive points at all. This is a zero-point loan. You can pay points at closing to receive a lower interest rate. You can choose to have points paid to you (also called lender credits) and use them to cover some of your closing costs. [Buyer Paid]
Underwriting: Paid to the lender, this fee covers the cost of researching whether or not to approve you for the loan. [Buyer Paid]
Prepaid interest: This is money you pay at closing in order to get the interest paid up through the first of the month. [Buyer Paid]
Mortgage insurance premium: The lender may require you to pay your first year’s mortgage insurance premium or a lump sum premium that covers the life of the loan, in advance, at the settlement. [Buyer Paid]
Property Protection Costs
These are costs associated with activities intended to protect your and your lenders interests in the property.
Appraisal: This charge pays for an appraisal report made by an appraiser. [Buyer Paid]
Flood determination: This is paid to a third party to determine if the property is located in a flood zone. If the property is found to be located within a flood zone, you will need to buy flood insurance. The insurance is paid separately. [Buyer Paid]
Home inspection: If a buyer chooses to have inspections, which I always encourage, there are fees associated with this to inspect the condition of a property and to check for home repairs that may be needed before closing. [Buyer Paid]
Survey: The lender may require that a surveyor conduct a property survey. This is a protection to the buyer as well. Usually the buyer pays the surveyor’s fee, but sometimes this may be paid by the seller. [Buyer Paid] - Note, sometimes if the seller has a recent survey, the lender may accept this survey versus ordering a new one. Each lender is different so verify with the lender directly.
Lender’s title insurance: The cost of the lender’s policy, which protects the lender’s investment. [Buyer Paid]
Owner’s title insurance: The cost of the owner’s policy, which protects the homeowner’s investment for as long as they, or their heirs, own the property. [Buyer Paid]
Homeowner’s insurance premium: This insurance protects you and the lender against loss due to fire, windstorm, and natural hazards. Lenders often require the borrower to bring to the settlement a paid-up first year’s policy or to pay for the first year’s premium at settlement. [Buyer Paid]
Home warranty: This is only applicable if a home warranty is purchased as part of the transaction. Fee for an insurance policy to protect you from cost of unexpected failures to the major systems and appliances in your home. [Buyer or Seller Paid]
Documentation costs:
You will have to pay for any research involving public records and title history for your new property. This insures that the title is unencumbered by other ownership claims or liens and can be delivered to you at closing. Other costs include recording and transfer fees, which cover legally recording the deed to your name.
Recording fees: Fee to record the Deed. $10 to $27 clerk's fee for recording your deed.[Typically Buyer Paid]
Title search: The fee to search the public records of the property you are purchasing.
Document Preparation: This fee covers the cost of preparation of final legal papers, such as a mortgage, deed of trust, note or deed. [Buyer and Seller Paid]
Notary: This fee is charged for the cost of having a person who is licensed as a notary public swear to the fact that the persons named in the documents did, in fact, sign them. [Buyer and Seller Paid]
Documentary Stamp Tax: Florida tax on deed is $.70 (70 cents) for every $100 of the purchase price [ Seller Paid]
Attorney fees: Both the homebuyer and the seller might have their own legal representation to prepare and record legal documents. Frequently, however, where an attorney is acting as a settlement agent, there may only be one involved in the closing. Who pays for those services is a matter of contract negotiation. Note, in Collier County, the buyer chooses the closing company. If they choose an attorney versus a title company, the seller will not have the option of utilizing a title company for their side as the title companies make their money off of the buyer securing title insurance through them. As such, they do not handle closings when it is just the seller. [Seller and Buyer Paid]
Real estate commission: This is the total dollar amount of the real estate broker’s sales commission, which is usually paid by the seller. This commission is typically a percentage of the selling price of the home. [Seller Paid]
Here is a great calculator by a local mortgage group that can help you project estimated closing costs. If you are not already working with a real estate agent, please reach out to me and I am happy to facilitate getting you estimates. CLICK HERE