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Closing Costs

When you apply for a loan, the lender is required to give you a good faith estimate of the costs associated with the loan. The costs of the following services should be described in that document. Costs usually range from 3 to 5 percent of the loan.

  • Sales/broker commission – Typically, the seller will pay the REALTOR® a commission, which is based on a percentage of the sales price.

  • Loan origination fee or points – This fee covers the lender’s administrative costs. This fee is often expressed as a percentage of the loan and will vary by lender. The buyer may also choose to pay points in order to receive a loan with a lower interest rate.

  • Credit report – This fee covers the credit report that was ordered when you applied for the loan. Lenders often collect this fee when they take your loan application.

  • Appraisal – An appraiser is hired by the lender, but paid by the buyer, to estimate the value of the home. The appraiser compares the property to others in the area and assesses the physical condition in order to determine the fair market value of the home. Lenders allow you to borrow a percentage of the value of the home. The appraisal helps the lender calculate the loan-to-value ratio (LTV).

  • Inspection fees – This fee covers the inspection ordered by the lender at your request.

  • Mortgage insurance - Your lender may require that you purchase mortgage insurance. At closing you may have to pay the mortgage insurance application fee as well as the first year’s premium.

  • Assumption fee – If you are assuming the seller’s existing loan, you will have to pay an assumption fee.

  • Mortgage broker fee – If you use a mortgage broker, you will pay his or her fee in closing.

  • Title services, search and insurance – The title is the paperwork that asserts ownership of the property. Your attorney will complete a title search to insure that there are not any unknown owners of the property and to ascertain outstanding loans or liens on the property. You will pay for title insurance, possibly as part of the attorney fees, which protects your interests and rights as the new owner. The lender has a separate policy, but that does not you. The owner's policy will protect you against claims by others against your ownership of the new house. The title search and owner and lender’s fees will show up on the HUD-1 form.

  • Interest – Your lender may require you to pay the per diem interest that will accrue from settlement date to the end of the calendar month.

  • Insurance – Beyond mortgage insurance, you will be required to come to the closing with a year’s premium of hazard (or homeowners) insurance and flood insurance, if required. (For more information, see FEMA’s page on flood insurance http://www.fema.gov/fima/).

  • Escrow deposits – You will make payments for certain services and taxes into an escrow account. These monies are held in an escrow account and are used by the lender to pay the property taxes and insurance premiums as they become due. The escrow account can hold money for hazard insurance, mortgage insurance, city and county property taxes.

  • Title charges – This fee includes title search, title examination and title insurance binder.

  • Document preparation – Some lenders or title companies charge this fee to cover their cost of preparing the final legal documents.

  • Notary fee – This fee is charged for the licensed notary public who swears that the persons who signed the documents actually did.

  • Attorney’s fees – The lender may require that you pay for your legal services. Sometimes the seller will contribute toward these costs.

  • Real estate transfer tax and mortgage recordation fee – These taxes, paid by the buyer or the seller, are for legally recording the new deed and mortgage. Fees depend on the government where the property is located. In Tennessee, the state charges $0.37 per $100 of the purchase price ($370 on a $100,000 home). In addition, if you have a mortgage on your new home, you will have to pay a tax of $0.115 per $100 on all but the first $2,000 of your mortgage.

  • Survey and other inspections – You may have to pay other fees as required by the lender, such as a survey, pest inspection and lead-based paint inspection.


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