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Closing costs come in four varieties

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.

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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 twice.

Closing fees
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 taxes.
  • 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.

 
-- Posted: May 16, 2005
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