What fees make up the closing costs?

Find out what fees are closing costs made up of.

Figuring out closing costs

The total amount of closing costs and/or settlement charges can finalize a borrowers decision. The costs or fees charged by one broker could greatly differ from a competitor. It helps to know what fees are involved in a real estate transaction. Closing costs are simply the costs associated with the closing of your loan(s). With every real estate transaction there are typically 3 parties involved and of course each party has fees they charge.

Broker & appraisal fees

Broker fees can include but aren't limited to points, application fee, processing fee and a credit report fee. Also considered here is an appraisal fee, this is typically paid directly to the appraiser at the beginning of the loan process. With most brokers these fees can be negiotable. These are the only fees in the process over which the broker has the ability to manipulate. Points are percentages of the loan amount, they can vary from 1% to 4%.

Your lender fees

Lender fees will include in some form or another, an underwriting fee, a wire fee, tax service fee, flood certification fee, document prep fee, administration fee and processing fee. Lenders have set fees for different types of loans. These are not negotiable and are not able to be lowered or eliminated.

Lawyer and title fees

Attorney and title costs will consist of a closing fee, title examination, recording fee(s), and title insurance. There are also small fees associated with obtaining the tax information for your property. The attorney is responsible for obtaining your property's title and deed. Then changing to the new mortgage company and recording it with the county's registry. Be sure to review the attorney's fees and ask for explanation if needed.

Settlement charges & Prepaid items

The final part of the overall settlement charges are prepaid items. These consist of property tax, homeowner's insurance and prepaid interest. Depending on when the property tax and homeowner's insurance premium are due you may be required to pay these items in advance. In addition to that, if you are escrowing with the new lender they can require 2-3 months of tax and insurance premiums to begin your new escrow account. Its a good rule of thumb to anticipate 3-4 months of each prepaid item in the new loan. Lastly prepaid interest is included. The new lender will charge a per diem interest cost calculated based on your loan amount and interest rate. They will charge you per diem for the remaining days in the month you close your loan. For instance if you were to close on the 15th of that month, you would owe 15 days of interest. This allows you to skip a month's payment. Therefore your first mortgage payment on the new loan isn't due the next month after closing.

Tax & Insurance

This final group isn't considered fees or costs because they are items that you would normally pay. Your tax and insurance would be paid and you aren't paying more than you owe. The prepaid interest is the interest owed on the loan.

Now that you know what the different categories are you will be better informed to make a decision. Ask about the closing costs and what they will be. Because that amount will be rolled into your new loan and you will be paying it off over the life of the new loan. Have one of our trusted online lenders assist you in your search for a low cost loan!