There are certain standard costs associated with closing the sale of a house. Buyers almost always incur these closing costs, as the real estate sales contract specifies, however, depending on the contract the seller may have to split some of the closing costs. “Closing Costs” are the fees which cover the various services involved in the sale of a house. These fees are either paid out of pocket or indirectly by increasing the loan amount or charging a higher interest rate.
As indicated below, many of the closing costs result from getting your mortgage loan. At Mortgage Maestro, we are highly experienced in residential mortgage lending, so we can compile a comprehensive list of closing costs related to your mortgage in your estimate.
Getting The Loan Estimate
Within three days after you apply for a loan, we’ll give you a Loan Estimate. The Loan Estimate lays out information like insurance and taxes, closing costs, monthly payments and more. This estimate is not an approval, rather it’s the first step toward securing your loan.
Tax Closing Costs
This is the one closing cost that is often prorated between the buyer and seller. If the seller has already paid the annual property taxes, the buyer typically reimburses the seller for the period in which the buyer will be occupying the property. Likewise, if the taxes have not yet been paid, the seller typically reimburses the buyer for the period in which the seller occupied the property.
Transfer Taxes and Recording Fees
This is the cost for transferring ownership of the property and recording the purchase documents. The fee is often calculated as a percentage of the sales price.
Insurance Closing Costs
This insurance covers replacement costs for damages caused by fire, wind or other disaster that might affect the value of the property. Typically, the insurance also includes personal liability and theft coverage.
Flood or Quake Insurance
Additional hazard insurance coverage that is required for homes located in a designated hazard zone as established by the Federal Emergency Management Agency (FEMA). An appraiser, inspector, or your realtor can let you know if a property resides in a hazard zone.
Private Mortgage Insurance (PMI)
Insurance required for conventional mortgage loans when the borrower’s down payment on the house is less than 20 percent of the loan value.
This policy protects both the buyer and lender by insuring a clear chain of title. (In other words, it insures that that the person who sells the house has the legal right to do so.)
Loan-Related Closing Costs
An option for the home buyer is to pay points to lower the interest rate at which the loan will be repaid. Each point equals 1 percent of the mortgage amount. For example: on a $150,000 loan, 1 point would equal $1,500.
The fee for having the house appraised may be incorporated into the closing costs or payment may be required by the lender at the time the loan application is submitted.
The lender uses a credit report to determine the creditworthiness of the loan applicant. This fee is often paid when the loan application is submitted.
Typically the buyer is required to pay interest on the mortgage loan to cover the time between the closing date and when the first mortgage payment period begins. For example: If closing is on May 15. Your first monthly payment begins to accrue interest on June 1 with your first mortgage payment due July 1. At closing an interest payment covering the accrual period between May 15 and May 31 may be required.
At closing a payment may be required to fund the escrow account if the lender is paying home insurance, property taxes and/or other expenses out of the escrow account.