What Are Closing Costs?
Closing costs are fees paid in connection with the refinance or transfer of ownership in real property. They are paid by either the buyer or the seller on the settlement date.
These fees will always vary. What you pay for one refinance or property transfer will not be the same as another. This is due to the different parties involved, different types and locations of property, the financial capacity of a buyer and many more factors.
The law requires lenders to give you a loan estimate within three days of receiving your application. This document sets out what your closing costs will be. These fees, however, are not set in stone and subject to change.
Your lender should provide a closing disclosure statement at least three business days before the closing date. This is a more reliable estimate of your closing costs. Compare it to the loan estimate you’ve received and ask your lender to explain the fees and the reasons for any changes.
These fees can range anywhere from 2% to 5% of a property’s selling price. It’s smart to get estimates from two or three lenders so that you can take these costs into consideration before making an offer. For the easiest way to compare lenders who may use different terminology to describe their fees, simply ask for a loan estimate from each.
Some fees, such as document, processing, service, underwriting and courier charges are open to negotiation. However, third party fees such as an appraisal or survey, are not.
Where allowed by law, you can negotiate with the seller to have them pay some closing costs normally attributed to the buyer.
Below are items that are included in closing cost:
Credit report fees (the cost of checking your credit record)
Loan origination fees (which consists of the cost to your lender for processing your loan)
Inspection fees (for inspections requested by either you or the lender)
Survey fee (so that both you and the lender know where your property boundaries lie)
Escrow deposit which may cover private mortgage insurance and some property taxes
Pest inspection fee
Recording fee paid to a county or city authority to file a record of the property transfer and/or new mortgage lien against the property
Underwriting fee to cover the cost of processing a loan application
Discount points (money you pay your lender to get a lower interest rate)
Title insurance (protection for you and the lender should there be any issues with title to the property)
Title search fees (costs incurred by the company who checks the title on the property)