Closing Costs Explained
Closing costs are fees charged for mortgages and other real estate loans, such as home equity loans. As the name implies, they are paid at closing. Closing costs typically range from 3% to 6% of the loan amount. The specific closing costs you’ll need to pay will depend on the type of loan and the area in which you live.
Examples of possible closing costs
Application fee
Lenders may charge an application fee for processing your loan. The fee will vary depending on the lender.
Appraisal fee
A lender will order an appraisal on a home or property to determine its worth. An appraisal fee will be charged for this service. This fee can vary significantly based on the appraiser.
Legal fees
If an attorney is involved in the closing, legal fees will be charged. (See below)
Closing fee
This fee may go to the escrow company or attorney who conducts the closing meeting.
Credit reporting fee
Includes a credit check from all three credit bureaus.
Credit monitoring fee
This may be something set up for the lender to get notified if your credit changes during the mortgage process.
Escrow fees
You may need to pay a portion of property taxes and insurance upfront that will be placed in an escrow account.
Flood certification
If your home is in or near a flood plain, you may need to pay a fee for flood certification. This certification comes from FEMA.
Homeowner’s insurance
Typically, a lender requires that you purchase homeowner’s insurance prior to settlement.
Home inspection fee
Most lenders require a home inspection, especially with certain government-backed mortgage loans, such as an FHA loan.
Loan origination fee
This fee covers the processing and underwriting of your loan. It is typically 1% of the loan amount. This may also be listed as a loan processing fee or loan underwriting fee.
Title search fee
Paid to a title search company, it is a search for liens, bankruptcies, or unpaid taxes on a home.
Lender’s title insurance
This may be required by certain lenders. It protects the lender/financial institution if you lose your home to a title claim. Costs on this may vary.
Homeowner’s title insurance
This will protect you as the buyer if you lose your home to a title claim.
Pest inspection fee
Separate from a home inspection and may be required by certain states, counties, or lenders.
Private mortgage insurance (PMI)
If you put less than 20% down at closing, your lender may require you to pay PMI and ask you to put your first month’s premium down when you close.
Recording fee
An expense charged by a government agency for registering or recording the purchase or sale of a piece of real estate.
Home owner’s association fees
If you’re purchasing a home in a development with HOA fees, they may be done at closing.
Transfer taxes
A charge on the transfer of ownership of property from one individual or entity to another.
Land survey fee
A survey may need to be done on a property to determine the property lines.
Mortgage points
These are prepaid interest payments you can make at a mortgage closing in exchange for a lower rate.
Notary fees
The documents you sign at a mortgage closing will need to be notarized.
FHA, VA, and USDA fees
Specific fees charged on various mortgage loan types.
How to reduce closing costs
Closing costs may vary considerably based on the type of loan you are getting, the amount of the loan, and the location of the property. Shopping lenders and including your local credit union in your search may help you find a lender that offers lower fees. You may also be able to negotiate fees with some lenders. In the case of a mortgage loan, you may be able to negotiate with the seller to pay a portion of the closing costs as well. While costs such as an appraisal fee is usually non-negotiable, other fees may be.
Spirit Financial Credit Union can help you save with no closing costs
Options like Spirit Financial’s Smart Equity Mortgage Refinance, fixed-rate Home Equity Loan, and adjustable-rate HELOC all feature no closing costs to go along with competitive low rates and flexible terms. Visit our website today to learn more about home loans at Spirit Financial Credit Union.