HomeBuyer's Closing Cost

It is a common understanding among prospective home buyers that the main cost involved towards purchasing a home are the monthly mortgage payments of principal and interest on the mortgage. Even though they constitute a major portion of the cost yet in reality there are actually closing costs in addition to the principal and interest that cannot be overlooked.

Buyers Closing Cost - The closing cost estimate is provided by the lenders when a buyer applies for a loan. Generally buyers are expected to pay amounts within the range of 1 to 5 percent of the loan as closing cost. It is seen that closing costs vary according to areas and lenders. Following are the closing costs or fees paid by all the buyers.

Loan Origination Fee or Mortgage Broker Fee – This fee is paid in order to cover the administrative cost of processing the loan. It is usually 1% of the mortgage amount but at times it could be as high as 3% on a small loan amount.

Loan Discount Point – This fee is levied by the lender on the buyer. Usually they are called "points". One point is equal to one percent of the mortgage. The collection of points is simply a way to increase the yield of the loan. Discount points are essentially prepaid interest.

Appraisal Fee – This fee is paid to a professional appraiser who accesses the value of the property. The cost of the appraisal will depend on the location of the house, the complexity of the appraisal and the going rates for appraisers in that specific area. The cost of the appraisal is usually collected at the time of application. It is not refundable. Generally it is charged relative to the purchase price or size of the home. Hence one pays $300 for a $100,000 home.

Credit Report Fee - Credit fee is levied when a buyer applies for a home loan. It is the cost of a credit report, which detail buyer's credit history. Credit report attempts to determine buyers past payment history, outstanding bills, timeliness of payment, etc. A lender attaches great importance to this report, because this report forms the basis of loan approval and the loan amount to be sanctioned. The credit report fee is normally collected at application stage and is not refundable.

Title Insurance Fee – This fee is paid for an insurance policy. It provides the buyer guarantee of ownership rights on the property and also safeguards against any possibility of an unknown lien on the property. Title insurance fee includes the settlement or closing fees, title examination fee, endorsement and the actual mortgage policy fee. Buyer's agent generally quotes the insurance on the purchase price of the house.

Tax Service Fee – This fee is paid to the Loan Servicing Company. The servicing company creates an escrow account for the buyer from which they pay buyer's taxes and homeowner's insurance.

Courier Fee – These fees are paid by the Title Company for sending the documents to the lender after closing.

Notary Fee – In order to record the transaction the deed and the mortgage are notarized. The fees for the notarization are called notary fee.

Settlement Fee – A settlement fee is paid by the buyer in case he chooses to close outside the title company's or attorney's office. There will be no charge if buyer closes in the title company office.

Attorney Fee – In order to draft the loan documents some fees are charged by the attorney from the buyer. It includes reviewing closing documents, preparing closing documents and recording closing documents.

Pest Inspection Fee – The Pest Control Company is paid the pest inspection fee to inspect the woodwork for termites and so on. Buyer usually pays for inspection fee but in case of any repairs the seller pays for it.

Recording Fee – The buyer pays the court fees for making a public record of his/her legal ownership of the property. This fee varies depending on the number of pages recorded.

Verification of Deposit - Fees to be charged for verification of deposit.

Survey Fee – A survey fee is paid towards survey cost of the property. This is done in order to ensure that there are no encroachments within the property lines and shows where the house is located on the property. The survey also determines if the location is under any threat from natural calamity. The fees can vary from $225 - $400 depending on the size of the property and state where it is located.

Hazard Insurance – This is an amount withheld by the lender to ensure that the buyer pays towards hazard insurance. The lender impounds two months of premiums at closing and then collects 1/12th of the annual premium with each monthly payment. The buyer's insurance company establishes the actual amount collected.

To understand this aspect of closing cost, here is an analytical example that depicts the amount of actual expenses incurred by the buyer over and above the cash down payment. Assuming the contract price of the home to be $125,000 and the loan acknowledged is $110,000, where in the cash down payment will be $15000.

Therefore we can conclude that besides cash down payments a buyer has to pay the closing costs, which in the above case is $5167.00, i.e. between $2000 and $6000 as said in the above discussion.

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