What Are Closing Costs?

Understanding Closing Costs: A Simplified Guide

Congratulations on finding your dream home! Now, let's demystify the closing process, the last step before getting your keys. Closing, also known as settlement, is the transfer of property ownership from the seller to the buyer.

As a buyer, you'll sign various documents and present a check covering the down payment and closing costs. These costs often puzzle buyers, who may hand over thousands without knowing what they're paying for.

Here's a breakdown of common closing costs:

  • Appraisal Fee: Covers property appraisal, possibly paid at loan application.
  • Credit Report Fee: Covers the lender-requested credit report, possibly paid at loan application.
  • Loan Origination Fee: Covers the lender's processing costs, typically one percent of the total mortgage.
  • Loan Discount: A one-time charge if you pay points to lower your interest rate.
  • Title Insurance Fees: Include costs for title search, examination, insurance, document preparation, and miscellaneous fees.
  • PMI Premium: If your down payment is low, this fee protects the lender until you have 20% equity.
  • Prepaid Interest Fee: Covers interest from home purchase to the first mortgage payment.
  • Escrow Accounts: Holds funds for future property taxes and home insurance.
  • HOA Fees: Some have capital contributions and membership transfer fees.
  • Recording Fees and Transfer Taxes: Charged by states for recording purchase documents and transferring ownership.

Remember, these fees can vary, and consulting a local real estate professional is crucial. You can also negotiate with the seller during the offering stage, and in some cases, they might cover all settlement costs. Understanding closing costs empowers you in your home-buying journey.