Understanding Closing Costs

Closing costs are a necessary part of any real estate transaction for buyers. They are the fees and charges associated with the purchase of a property. These fees can vary depending on the location of the property, the type of loan, and other factors. It is important for buyers to understand the different types of fees associated with closing costs to be prepared for the costs of purchasing a property.

Types of Fees With Closing Costs

There are several types of fees that are included in closing costs. These fees can be broken down into two categories: lender fees and third-party fees. Lender fees are fees associated with obtaining a loan. Third-party fees are fees associated with services provided by third-party companies.

Lender fees:

- Application fee: A fee charged by the lender to process the loan application.

- Origination fee: A fee charged by the lender to originate the loan.

- Discount points: An optional fee paid to the lender to lower the interest rate on the loan.

- Appraisal fee: A fee charged to have an appraiser evaluate the property to ensure it is worth the amount being borrowed.

- Credit report fee: A fee to pull the credit report of the borrower.

- Title fee: A fee to ensure that the title of the property is clear and transferable.

Third-party fees:

- Escrow fee: A fee for the escrow company to hold funds until the transaction is completed.

- Survey fee: A fee for a surveyor to survey the property to ensure the boundaries are correct.

- Home inspection fee: A fee to have a home inspector evaluate the property to find any issues that need to be addressed.

- Recording fee: A fee to record the sale with the county or city.

Mortgage Insurance Premium

Mortgage insurance is a type of insurance that protects the lender in case the borrower defaults on the loan. If the buyer is putting down less than 20% of the purchase price, they will likely have to pay for mortgage insurance. The mortgage insurance premium is usually a percentage of the loan amount and is paid monthly as part of the mortgage payment.

In summary, closing costs are an important part of any real estate transaction. Buyers should be aware of the different types of fees associated with closing costs to be prepared for the costs of purchasing a property. Lender fees and third-party fees are both included in closing costs. Mortgage insurance premium is an additional cost for buyers who put down less than 20% of the purchase price. Understanding these costs can help buyers budget and plan for the purchase of a property.