What are Closing Costs?
“Closing Costs” are the fees that cover various services required by the lender and other involved parties to complete any loan associated with the purchase, sale or refinance of a home.
As the list below indicates, many of the closing costs result from getting your mortgage. At South County Mortgage, we have extensive experience in mortgage lending, so we compile a comprehensive report on closing costs related to your mortgage in your Loan Estimate.
The party responsible for covering the closing costs is negotiated by the seller and buyer.
Loan Estimate (LE)
Shortly after you submit an application to obtain a new mortgage, we provide you with a Loan Estimate. As the name states this is strictly an estimate, and the variables that make up the estimate are calculated using the most accurate information that we have available at the time of the application.
The purpose of the Loan Estimate is to give you the most accurate picture possible of the loan that you will receive from the lender.
Factors that can contribute to the Loan Estimate can include but are not limited to these variables:
- The appraised value of the home
- Your credit score
- Co-borrowers credit score
- Your debt to income ratio
- Pay off amounts of any revolving or installment debt to be paid off.
- Additional debts that we need to pay off
Some of the closing costs will remain fixed and constant regardless of inputted variables. It is not uncommon for prepaid items such as insurance and taxes to vary slightly from the original LE and the actual closing date of the loan.
Below you can review a list of common and generic closing costs. Once your Loan Estimate is prepared and presented, you will be provided with a specific list of your closing costs.
Standard Closing Costs:
Loan Related Costs
- Escrow Fees
- Loan Origination Fee
- Points — These are costs you pay up-front to lower your mortgage interest rate (optional)
- Appraisal Costs
- Getting Your Credit Report
- Interest Payment
Loan Origination Fee
This covers the administrative expenses in setting-up and processing the loan. The loan origination fee may be a percentage of the mortgage amount.
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.
- Recording Fees & Transfer Taxes
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.
- Title Insurance
- Flood or Earthquake Insurance if applicable
- Private Mortgage Insurance (PMI)