Mortgage Closing Costs - What should you expect?

Buying a home is not just about having the cash for the down payment and being able to afford the monthly mortgage payments. There are other costs involved when setting up mortgage financing for the purchase of a home. These costs and fees are usually referred to as closing costs. It is important that mortgage borrowers understand what the costs involved in obtaining a mortgage really are and what they mean.

Buyer’s Estimate of Mortgage Closing Costs

You will be required to bring a cashier’s check with you to closing to pay for your closing costs. These costs include any balance required for your down payment, charges and fees from your mortgage lender, the title company and government recording fees.  When you apply for your mortgage, your mortgage lender will provide you with a Good Faith Estimate (GFE) of your closing costs, which should include the mortgage lender fees, the title company fees and recording fees. Please keep in mind that this is just an estimate of your closing costs and that the actual amount of closing costs required will not be known until 24-48 hours prior to the day of your closing.
 
You will find a worksheet below that will help you to estimate the closing costs for the purchase of your home. You will find an explanation of each section of the estimate worksheet below as well.

Mortgage Lender’s Fees in Closing Costs

Points – Each point is worth 1% of the loan amount.  Points are also known as discount or origination points/fees.  For example, on a $100,000 loan, 1 point is equal to $1,000.
 
Document Preparation Fee – This is a fee that the mortgage lender charges to prepare the documents that you will sign at closing.
 
Tax Service Fee - This is a fee charged by the mortgage lender for establishing or retaining a tax paying service.
 
Private Mortgage Insurance (PMI) – This is generally charged by the mortgage lender when the down payment is less than 20% of the purchase price of the home.

Mortgage Insurance Premium (MIP) – This is a fee that is generally chargedon FHA loans, paid as a one-time premium up front, plus monthly payments for the term of the loan. Please note:  Not all mortgage lenders charge all of these fees on every loan and some mortgage lenders charge other fees not listed here. Therefore, you should contact your mortgage lender for more specific details on the fees that they charge for your particular loan.  

Escrows

Escrow is money that is held in an account in order to pay for future bills, such as hazard insurance, private mortgage insurance and property taxes.  In order to calculate the monthly charge for fees of this nature, divide the total amount by 12. The closing cost estimate worksheet lists the number of months that mortgage lenders typically require that you keep in escrow in order to cover the payment of these bills.
 
Closing/Settlement Fee – This fee is paid to the title company for the preparation of documents, examining the title abstract, conducting the closing, coordinating with the mortgage lender and all of the other parties in the transaction, disbursing funds, recording documents, procuring and recording releases of existing liens, issuing title insurance policies, and any other services that the title company provides to the borrower.
 
Title Abstract/Examination - This is a fee paid to search the public land records in order to verify ownership of the property. The title examination shows the loans and liens that must be satisfied from the Seller’s proceeds at closing.
 
Title Insurance Premium– The amount that is paid for title insurance coverage is based on the mortgage loan amount and the purchase price, as determined by rates filed with each jurisdiction insurance commission.
 
Delivery Fee– Mortgage lenders require that their loan documents be delivered by a courier or sent overnight delivery to and from the mortgage lender and the courthouse for recording. This is the fee for these deliveries.

Governmental Recording Charges 

State and County Recording Fees – State and local governments charge transfer and/or recording fees when you purchase a home. These can vary from state to state and in certain states, like Florida, these fees are often referred to as “doc stamps.”

Other Mortgage Closing Costs 

Survey – Fee for the house survey that shows the approximate location of the improvements within the boundaries of the property.
 
Homeowner’s Association or Condominium Association Fees – This fee only applies to housing developments that have associations. The fee listed here is usually for the next month’s payment. You will reimburse the Seller for any portion previously paid by them.
 
Property Taxes – The Buyer is responsible for reimbursing the Seller for any prepaid taxes. The Buyer is also responsible for establishing an escrow account for the payment of future tax bills by the mortgage lender.
 
If you would like to download a printable Excel worksheet, Microsoft Office has a template that you can download at
http://office.microsoft.com/en-us/templates/TC010566191033.aspx