One question I frequently get asked by buyers is “What the heck are they charging me more money for at closing??” Briefly, these fees are usually between 2-5% of the amount of the mortgage and are primarily fees that your lender is charged by someone else that they so graciously pass on to you. To break it down and explain some of the costs that aren’t always clear, closing costs consist of:
- Loan origination fee – the fee the lender charges you for processing the loan paperwork
- Title fees – fee that’s paid to research the title of a home to make sure there are no unknown liens against it, and the fee that provides insurance to the lender in case something unknown comes up after closing
- Inspection, appraisal, and property survey fees
- Fee for running your credit report
- Recording fee – paid to the county for recording new legal information about a property
- Underwriting fee – paid to the underwriter by the lender for evaluating the strength and risk of the mortgage application
So what can you expect to pay? Well, the best thing to do is to ask for a Good Faith Estimate (GFE) from your lender. This will outline what you can expect in closing costs, and, in some states, your lender can only deviate a certain percentage of the closing costs determined in the GFE.
Once your mortgage is approved by the underwriters and your closing date is set, your lender will give you a copy of your HUD statement within 24 hours of closing. This shows all the fees and costs associated with your mortgage, including the exact amount of the closing costs and the amount of money you will need to bring to closing. You can compare this to your GFE to make sure the HUD costs are legally within the range of what the lender can charge you.
Hopefully, this helps you figure out exactly what you’re getting charged for, and de-mystifies some of the real estate jargon that so often accompanies these kinds of fees!
**I am not a lawyer and this does not constitute legal advice. If you have a legal question, you should consult a real estate attorney.