Understanding Your Closing Costs
Application Fee is a fee charged by the lender to make initial application, and allow the lender to pull appropriate credit information in order to obtain a “pre-approval”.
Closing Fee is charged by the Title Company who prepares the closing documents and will close the loan, acting as the intermediary agent for al parties involved.
Commitment Fee is often called an origination fee, and is generally computed at 1% of the mortgage amount. Most lenders today do not require an origination fee.
Discount Points are used by the lender to adjust the yield on the mortgage when sold to an investor. Each point is equal to 1% of the mortgage amount. By paying more points, the borrower can obtain a lower mortgage interest rate.
Homeowner’s Insurance will cover your home for fire, theft, etc. The first year’s premium must be paid prior to closing and you must have a copy of the policy (declaration page) and a paid receipt at the time of closing.
Mortgage Insurance is required (traditionally) by the lender when the down payment is lower than 20%. In the case of loan default, this insurance reduces the lender’s loss. There are programs where the buyer may put less than 20% down and avoid mortgage insurance. This program will carry a higher interest rate to compensate. Please check with your lender for the various programs.
Prepaids are adjustments to an escrow account set up and paid at time of closing. Interest is paid from the day of closing to the first of the next month. Other payments on behalf of an “escrow account” would be to fund taxes, which are paid twice a year, homeowner’s insurance, and mortgage insurance, if applicable.
Tax Service Fee is the charge by the lender to set up the escrow accounts for the buyer.
Recording Fees are charged by the state or municipal entities for entering the closing documents into public record
Survey Fee is the cost to provide a “minimum standard” assessment of legal boundaries, to check for encroachments from within or outside the subject property. A “staked” survey is not required by the lender, and is substantially more expensive than a “mortgage survey”.
Transaction Fee is the only fee charged to the buyer by your realtor. The $206 fee is charged by the F.C. Tucker Company for each transaction to each agent, to cover increasing costs of storage and filing transaction information mandated by the state. All other realtor fees are covered by the seller.
Title Insurance provides protection for the lender and the new homeowner against financial loss resulting from legal defects in the title. An acceptable Title commitment will be a condition of the purchase agreement.
Underwriting Fee is a fee charged by the lender to assure the loan is legally “underwritten’ by a qualified professional, and is paid at time of closing.