Now that you have secured a mortgage loan and completed
the necessary appraisal and inspections, it's time to sign the documents
and pay the closing costs that will make the house your legal property.
How much will closing cost you? Typical closing costs
run from 3 to 5 percent of your loan amount. In all likelihood,
you have already paid some of these fees to pull credit reports,
apply for the loan or, as earnest money, a prepaid portion of your
down payment. All other unpaid fees and deposits come due at closing.
It is essential at closing to compare your settlement
costs to the good faith estimate provided to you by your lender
shortly after your loan was approved. Let it be your guide to flag
unfamiliar entries or excessive charges. Also, be certain that the
fees you have paid are reflected as credits, not debits, on your
settlement documents. Otherwise, you could inadvertently pay them
There are four categories of closing fees:
- Lender fees include
charges for loan origination, underwriting, document preparation
and establishing an escrow account, as well as points, if any.
Be on the lookout for "funding and review fees," "payment
processing fees," "doc prep fees" or "administrative
fees" -- these could be so-called junk fees that the lender
may be willing to reduce or eliminate at your request.
Third-party fees include charges
for title search and insurance, flood certification, appraisal,
termite and other inspections. Although lenders have little control
over fees set by third-party providers, if a charge seems substantially
higher than what the lender quoted on your good faith estimate,
ask about it. Lenders are often willing to adjust their own fees
to keep the deal together.
- Government fees
cover such things as deed recording and state and local mortgage
- Escrow and interest fees
include advance payments into an escrow account to cover homeowner's
insurance, real estate taxes, loan interest and private mortgage
insurance, if any. Escrow accounts also may hold interim interest,
or the daily rate of mortgage interest you pay from closing through
the end of that month. This is why most smart buyers try to save
some money by closing near the last day of the month.
Typical closing costs
Lenders, brokers and third-party mortgage originators charge all
sorts of fees to borrowers. It's hard for borrowers to know whether
they're being overcharged. To clarify things, Bankrate.com gathered
closing-cost information in 50 states and the District of Columbia
in the fall of 2003. Click
here for the survey.