A Breakdown of Typical Closing Costs

When buyers sit down to close on their home purchases, they will be presented with a long list of costs, made up of things like closing fees and insurance payments. These closing costs can get quite complicated— varying by location, property style, and loan type, among many other things. If you’re planning on purchasing a home anytime soon, you should make sure that you’re familiar with the different fees you may incur. Below is a primer on common closing costs and what they cover. Note that not all of the different fees detailed below will apply to every buyer; some buyers may even be charged for other fees that are not listed here.

Common Closing Costs

• Loan Origination Fee

  • These fees are paid by the buyer and generally used to cover a lender’s administrative costs. Origination fees are usually expressed as “mortgage points,” or 1% of the loan’s amount.

• Loan Discount Points

  • As stated above, a “point” is equal to 1% of your total loan amount. A discount point is basically a down payment but for interest instead of principal. This will bring down a borrower’s monthly payment for the duration of the loan’s amortization schedule.

• Application Fee

  • Lenders charge this fee to prospective borrowers to cover the costs of processing their loan applications. The average application fee is below $300, but could be more expensive depending on what it covers.

• Appraisal Fee

  • Appraisal fees, like application fees, often cost around $300. A lender will hire an independent appraiser to confirm the fair market value of the property the borrower wants to purchase.

• Attorney Fee

  • This pays for the hiring of an attorney tasked with reviewing all documents on behalf of the borrower or lender.

• Closing or Escrow Fee

  • The escrow/closing fee goes to the escrow company, title company, or attorney that coordinates the closing. If you live in a state where an attorney is legally required to be present at closing, expect to pay this fee.

• Credit Report Fee

  • While a credit check is sometimes included in the application fee, lenders may also charge an additional fee to pull your credit.

• FHA Upfront Mortgage Insurance Premium

  • If a borrower opts for an FHA loan, he is required to have two different mortgage insurances, one of which is the upfront mortgage insurance premium. The upfront premium is a one-time payment, equal to 1.75% of the total loan amount.

• Home Inspection Fee

  • A buyer should pay to conduct a home inspection before closing in order to achieve two things: confirm its stated condition and check for any possible repairs.

• Homeowners’ Insurance

  • It’s quite common for the first year of a buyer’s insurance policy to be paid at closing.

• Mortgage Insurance Application Fee

  • As previously mentioned, it is sometimes necessary for a buyer to have mortgage insurance. If the down payment is below 20%, then the buyer will be responsible for a monthly mortgage insurance payment until equity in the home reaches 20%. Lenders will sometimes charge a fee at closing for processing the insurance application paperwork.

• Survey Fee

  • This is charged to verify all property lines and review things like shared fences on property.

• Title Search Fee

  • A title company will perform a search of a home’s records to confirm that no one else has any claim on the property. They typically charge about $200 to do this.

• Document Preparation Fee

  • Lenders will sometimes charge this fee to pay for the cost of preparing all final legal documents. While the fee is often around $200, it’s not uncommon for it to be negotiated down, sometimes to nothing at all.

• Notary Fee

  • This is paid to the notary, an official who bears witness to the fact that the people identified on all documents are the same people who signed them.

• Underwriting Fee

  • An underwriting fee is paid to the lender to cover the costs associated with researching a borrower before they are approved for a loan. Such fees can vary.

Again, while many of the fees listed above are commonly required, closing costs can vary greatly. Some can be negotiated down, while others can be waived by the lender completely. In some states, closings are much simpler than in others, and so some fees may not be charged. For example, not all states require that an attorney be present at closing, so an attorney fee will not be charged. It’s important that you’re familiar with what you’re paying for at closing, otherwise you may end up getting overcharged. Make sure you hire a credible lender, with a reputation for acting with fairness and transparency towards its customers.