A Buyer’s Guide to Closing Costs
When purchasing a home, it’s very important to know how much you can afford and how you’ll pay for it. Typically the down payment is the biggest financial barrier to overcome, then is the closing costs.
What are closing costs?
Closing costs are additional fees related to the entire real estate purchase that will be settled at the closing table. The actual expenses you pay may vary in name and structure depending on your location, but typical cost include:
- Origination Fee – Payment to lender to evaluate your credit and underwrite and process loan.
- Discount Points – Paid to lender a closing to reduce interest rate over life of mortgage.
- PMI or Mortgage Insurance – Required if down payment is less than 20%. Protects lender if you default.
- Appraisal Fee – Paid to appraiser to confirm home’s fair market value.
- Title Search – Covers cost to confirm seller owns property, and it is free from liens.
- Title Insurance – Protects lender and (optionally) you if title claim surfaces later.
- Termite Inspection Fee – Inspection required to certify home is free of termite damage.
- Survey Fee – Charge to verify property boundaries.
- Floor Certification Fee – Covers cost to determine if home is in federally designated flood zone. It it is, lender will require you to purchase flood insurance. Some lenders also charge a separate flood monitoring fee to check for flood map updates.
- Closing or Settlement Fee – Paid to title company, attorney or escrow company that conducts closing.
- Recording Fee – Paid to state to record transfer of property from one owner to another.
- Transfer Tax – Paid to state, based on the amount of the mortgage.
- Prepaid Interest – Covers mortgage interest due between date of closing and first mortgage payment.
- Prorated Property Tax – Covers date of closing to end of tax year.
- Homeowner’s Insurance – Typically, you’ll pay full first year cost upfront at closing.
- Homeowner’s Association Transfer Fee – Paid on properties governed by associations to transfer ownership documents to you.
- Initial Escrow – Lender may require first two months of next year’s homeowner’s insurance, flood insurance and property tax to build reserves.
Sources: Bankrate.com, consumerfinance.gov
Prepare for costs in advance to ensure that everything runs smoothly at closing.