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What are
closing costs?
Why do you pay them?
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| Many people are involved in the process of buying or refinancing a
house. They include the Realtor ,
lender, appraiser, insurance company, inspectors, title company, your
local government and your attorney. Each of these parties charges fees for their
services in processing and funding your loan. |
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Some
of the fees described below may not apply to your type of
mortgage loan |
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Appraisal Fee -
This fee is charged at loan application and is payment to an appraiser for researching the
fair market value of the property. The appraiser compares the the property to other
similar homes in the neighborhood which have recently been sold. |
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City
or County Transfer Tax - Taxes charged when a property transfers
ownership. Similar to a sales tax, not to be confused with your local recurring
property tax. |
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County Property Taxes -
Taxes billed for the ownership of property, usually paid twice a year. These taxes
are generally prorated and sometimes result in a credit from the seller when purchasing a
property. If you will have an escrow or impound account, several months worth of
taxes may be collected from you at closing to deposit in your account.
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Courier Fee -
Paid to a courier for delivery of documents from the lender or to express payoff of an
existing loan on the property. |
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Credit Report -
This fee is charged at loan application to provide the lender with a report detailing a
borrower's credit history. |
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Flood Certification Fee
- Paid for a flood certification which states whether or not the property is located in a
flood zone. If so, the lender will require you to purchase flood insurance. |
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Hazard Insurance
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(Homeowner's Insurance) If you are purchasing the property, the lender will require
you to pay the entire first year's premium. If you will have an escrow account, at
least two additional months will be collected at closing to deposit in the account.
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Interest to End of the Month
- Lenders charge interest from the date the loan is funded until the first
day of the following month. |
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Inspection Fee -
This fee is charged for inspection of a property after an appraisal. It is usually
done if you are buying new construction and the lender wants to be assured the house is
completed. |
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Mortgage Insurance Premium -
Private Mortgage Insurance (PMI) may be required on certain loans, generally if you are
putting less than 20% down. |
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Origination Fee -
A fee charged by the lender for making a mortgage on the property. This fee usually
is computed as a percentage of the loan amount. |
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Pest Inspection -
Fee charged for a termite inspection of the property. This may sometimes be waived,
but some lenders may require it. |
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Points - Also
known as discount points. A one time fee charged by the lender to lower the interest
rate normally charged. Each point is equal to 1% of the mortgage amount. |
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Recording Fees -
Fees paid to your county which records documentation of your legal ownership of the
property, such as the deed, mortgage, note, etc. |
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Settlement or Closing Fee -
A fee paid to the title company or attorney for handing all the financial transfers and payments
associated with the transaction. |
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Tax Service Fee -
A fee charged for researching county tax records to confirm that the taxes are paid in
full and up to date. |
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Title Insurance -
Guarantees that your property has no other lien or claims against the property. Your
lender requires that you purchase title insurance. |
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Underwriting Fee -
The lender's fee for reviewing your loan application for approval. |
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Wire Transfer Fee -
When you purchase or refinance, funds will be wired to fund the transaction. The receiving
account charges a nominal fee for the wire transfer. |
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