What are Closing Costs?
“Closing Costs” are the fees that cover the various services involved when you buy or sell a home. Sellers and buyers negotiate who pays these closing costs.
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.
Loan Estimate (LE)
Soon after you submit your application, we’ll provide you with a Loan Estimate of your costs. Certain parts of the closing costs spelled out in the LE are calculated down to the penny and will remain the same until closing, however prepaid items such as taxes and insurance often vary by small amounts between delivery of the LE and closing. We handle buyers’ questions about these costs every day at South County Mortgage, so please feel free to contact us if you have questions.
Below you’ll find a generic list of closing costs. We will provide you with a specific list of your closing costs when we provide your Loan Estimate.
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)