Closing Fees and Costs Explained

To help you prepare, here’s a list of the common types of closing fees you may expect to pay at closing, including mortgage-related fees and other costs.

Appraisal: This fee covers the property appraisal requested by the lender, in order to determine the home’s value when considering how much to lend.

Closing or Escrow: The title or escrow company may charge this fee to cover the costs of administering your home closing.

Condo Fee: If you’re buying a condominium, the homeowners association may require an annual fee payment, which may be included in your closing costs.

Credit Report: The lender orders and reviews your credit history to determine your mortgage rate.

Flood Certification: Lenders may request a third party to verify whether the property is in a flood zone, in order to determine if the buyer needs to buy flood insurance.

Homeowners Insurance: Buyers usually pay for the first year of their homeowners policy at closing. If you’re buying a condo, this may be included in homeowners association fees.

Mortgage Origination and Underwriting:  These fees cover the lender’s administrative costs for processing your mortgage. It may be paid prior to or at closing.

Points or Loan Discount: If your mortgage program includes points as part of your closing costs, you’ll pay this in one lump sum at closing. Each point equals one percent of the loan.

Prepaid Interest: This is the amount of interest that accrues between closing and the date of the first mortgage payment, which often is due on the first of the month.

Private Mortgage Insurance (PMI) Premium: If your down payment is less than 20 percent of the home’s purchase price, you’ll need to pay PMI.

Recording Fees: These fees are charged by either the city or county for recording the home sale and transfer of ownership.

Title Insurance: Buyers typically pay for title insurance, which protects buyers and lenders against potential problems with the title when ownership of the property is transferred to the seller.

What Are ‘No Closing Cost Mortgages?’
Some lenders offer “no closing cost” or “zero closing cost” mortgages, which involve waiving certain closing cost fees. However, “no closing cost” mortgages typically involve higher interest rates over the life of the mortgage.

A Final Word
After submitting your mortgage application, your lender will provide a loan estimate, which will include most of the closing costs. Keep in mind that these are estimates and may change, in which case you’ll receive a revised estimate. Be sure to carefully review your Closing Disclosure statement, which will specify your final closing costs. Your lender will provide the Closing Disclosure at least three days before closing.

If you have questions, talk to your mortgage loan officer for clarification, so you’ll be well-prepared and have peace of mind in the countdown before closing.