What are Closing Costs

“Closing Time” is more than just a Semisonic song that is fun to sing in the shower. In the mortgage loan process, closing is when home ownership is officially transferred from the seller to the buyer. The term closing costs encompasses all the taxes and fees associated with finalizing a mortgage. Buyers are responsible for the majority of closing costs, but sellers may have to pay some as well, such as the real estate agents’ commission.

Here are some examples of items that could be included in closing costs:

• Application Fee: The lender’s cost to process your application.
• Appraisal: An appraisal is used to assess a home’s value to ensure that it is worth the amount of the loan.
• Closing or Escrow: The amount paid to the title company, escrow company or attorney who oversees your closing as an independent party.
• Credit Check: A credit report is needed to review your credit score and history to determine your eligibility for the loan and interest rate.
• Flood Certification and Insurance: You may need to pay a third party to determine if your home is in a flood zone and then get flood insurance if it is.
• Homeowners Association (HOA) Fees: If you’re buying a condo that has an HOA, you might need to pay the annual fee up front.
• Homeowners’ Insurance: Buyers may have to cover the first year of their homeowners’ insurance policy.
• Origination or underwriting: This includes the lender’s administrative work.
• Prepaid Interest: This covers the interest accrued between closing and your first loan payment.
• Private Mortgage Insurance (PMI): If your down payment is less than 20% and you need to pay PMI, you might need to make you first month’s payment.
• Recording Fees: These are charged by your municipality or county for recording the sale of the property for public land records.
• Title Search and Insurance: A title company conducts a thorough search of public records to ensure no one else has claim to the property. This protects the buyer and lender from problems transferring ownership of the home.

How much are closing costs? Your mortgage lender will provide you with a Loan Estimate within three business days of applying for your loan so you have a good idea what expect. You’ll learn the precise amount of your closing costs through the Closing Disclosure you’ll receive at least three days before settlement. Learn more about our home loan options.