Closing costs are the expenses associated with buying real estate. Some of the items that may be included, among others, are:
- the loan origination fee or a point, charged for the lender's costs of processing the loan. The fee is usually a percentage of the loan amount and the percentage varies among lenders.
- the loan discount, called point or discount point, which is a one-time charge imposed by the lender or broker to lower the interest rate
- credit report fee, used by banks to determine the borrower's credit rating
- appraisal fee, used to determine the property's value
- inspection fee
- title search
- title insurance
- attorney fees
- loan application fee
- recording fees
- underwriting fee
- settlement or closing/escrow fee
- prepaid insurance and property taxes
The Real Estate Procedures Closing Act, RESPA, requires lenders and mortgage brokers to give you a Good Faith Estimate of the loan-related expenses that are due at closing. However, this is only an estimate and actual costs may be significantly higher. Certain costs are prorated between the buyer and seller, such as property taxes. Closing costs may be negotiated between the buyer and seller. State and federal laws, which vary, apply to determine whether the seller or buyer may negotiate at the time of contract who pays certain closing costs. For example, FHA loans and 90% LTV (Loan to Value) typically allow a 6% seller contribution.
