"What Are Typical Closing Costs"

All closing costs are spelled out in the lender’s Good Faith Estimate. If you want to make sure you are paying the least amount possible in closing cost fees, you should get at least three Good Faith Estimates from mortgage lenders. This is only an estimate and the actual charges may differ. RESPA allows the borrower to request to see the HUD-1 Settlement Statement that shows all actual charges imposed on borrower in connection with the settlement one day before the settlement. If you see a charge that doesn’t make sense, or that no other lender has, you need to ask questions.

When shopping for settlement services, you can use this section as a guide, noting on it the possible services required by various lenders and the different fees quoted by service providers. Settlement costs can increase the cost of your loan, so compare carefully.

Here is a list of typical closing costs. In general, closing costs amount to 3 percent to 5 percent of the loan.

Application Fee/Loan Origination: This fee is usually known as a loan origination fee but sometimes is called a "point" or "points." It covers the lender's administrative costs in processing the loan. Often expressed as a percentage of the loan, the fee will vary among lenders. Generally, the buyer pays the fee, unless otherwise negotiated.

Loan Discount: Also often called "points" or "discount points," a loan discount is a one-time charge imposed by the lender or broker to lower the rate at which the lender or broker would otherwise offer the loan to you. Each "point" is equal to one percent of the mortgage amount. For example, if a lender charges one point on a $100,000 loan this amounts to a charge of $1,000.

Appraisal Fee: This fee pays for an independent appraisal of the home you want to purchase. The lender requires this estimate of the market value of the house for the loan. Factors to be considered in determining market value are: present cash value; use; location; replacement value of improvements; condition; income from property; net proceeds if the property is sold, etc. The appraisal is a critical factor in determining how much of a mortgage the bank or mortgage company will approve. After the appraisal is completed, the borrower is normally entitled to a copy of the appraisal from the lender.

Credit report Fee: Three major national credit bureaus (Equifax, TransUnion and Experian) supply lenders with the information on your credit behavior.

Mortgage Insurance Application Fee: This fee covers the processing of an application for mortgage insurance.

Hazard Insurance Premium: Hazard insurance protects you and the lender against loss due to fire, windstorm, and natural hazards. Lenders often require the borrower to bring to the settlement a paid-up first year’s policy or to pay for the first year's premium at settlement.

Title Charges: Title charges may cover a variety of services performed by title companies and others. Your particular settlement may not include all of the items below or may include others not listed.

Document Preparation: This is a separate fee that some lenders or title companies charge to cover their costs of preparation of final legal papers, such as a mortgage, deed of trust, note or deed.

Notary Fee: This fee is charged for the cost of having a person who is licensed as a notary public swear to the fact that the persons named in the documents did, in fact, sign them.

Title Insurance: The total cost of owner's and lender's title insurance

Survey: The lender may require that a surveyor conduct a property survey. This is a protection to the buyer as well. Usually the buyer pays the surveyor's fee, but sometimes this may be paid by the seller.

Pest and Other Inspections: This fee is to cover inspections for termites or other pest infestation of your home.

Government Recording and Transfer Charges: These fees may be paid by you or by the seller, depending upon your agreement of sale with the seller. The buyer usually pays the fees for legally recording the new deed and mortgage. Transfer taxes, which in some localities are collected whenever property changes hands or a mortgage loan is made, can be quite large and are set by state and/or local governments. City, county and/or state tax stamps may have to be purchased as well.

You can divide all closing costs into two basic groups:

Payments to local governments should be the same at every lender. So should fees for appraisals, credit reports and title insurance. Total costs you can expect to pay are from 3% to 5% of the amount of your mortgage loan.

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