Closing costs are the expenses associated with buying reality. You'll pay a large chunk of the closing costs the day the trasaction is complete, when the property becomes yours, but some closing costs are nearly always paid before that day.
Even though your downpayment might be a high percentage of the funds you bring to closing it is not regarded as a closing cost. It's a payment that increases the equity in your home, not an expense.

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, but the amounts are just that--estimates, not guarantees of your actual closing costs.

Loan origination can be called a loan origination fee or a point and covers the lender's costs of processing the loan. The fee is usually a percentage of the loan amount and the percentage varies among lenders.

A loan discount is called point or discount point and refers to a one-time charge imposed by the lender or broker to lower the interest rate. Each point costs 1 percent of the loan amount and typically lowers the rate by 0.125%. Do a few calculations before you buy discount points to determine if the purchase will really save you money.

The appraisal fee pays for the appraisal report the bank requires to evaluate the property's worth before lending you the money to buy it.

A credit report fee pays for the reports that banks use to study your credit history. Credit reports and scores are one of the items that help the bank determine if you are a good credit risk, how much they can lend you, and what interest rate they should offer.

A lender's inspection fee is often charged when you build or buy home that's under construction. It pays for routine inspections the lender requires to monitor construction and release funds as work progresses.

A mortgage insurance application fee might be charged if your downpayment isn't enough percentage to allow the loan to be approved without private mortgage insurance, called PMI for short.

You might pay an assumption fee if you assume, or take over, the responsbilities of paying the seller's existing mortgage.

Closing costs paid in advance cover expenses that occur after closing. Prepaid interest covers the interest due on the loan from the day of closing until your first monthly payment.

If you are obtaining PMI the lender will require you to pay some portion of the premium at closing.

You'll probably pay for a year of hazard insurance at or before closing to protect you and the lender against loss from fire, windstorm, and some other hazards. If your new home is at risk of flooding the lender will require that you purchase flood insurance. Your lender might require other types of insurance for homes in your area.

Most people start funding their escrow, or impound, accounts at closing by paying multiple monthly payments for each bill the lender pays for them annually, such as property taxes and hazard insurance. Lenders jump start the accounts at closing to make sure there's plenty of money on hand when the bills arrive next year.
RESPA puts limits on the amounts your lender can require you to pay in advance.

Your home inspection is a closing cost, even if you pay it before your settlement date. So are radon tests, pest inspections and other specialized inspections you perform at the property.

Payments for home warranties are another common closing cost.

Arrangements for closings vary. In some states you will pay an attorney to do a title search, apply for title insurance for both you and your lender and perform the actual closing. In other states the title work is handled by specialty companies and closings take place in varied locations.

Your closing agent might charge you a notary fee to have loan documents notarized. You'll pay a recording fee to have the new deed and other documents recorded in public records. You might also pay an overnight fee to send documents to the lender and a wire transfer fee for incoming or outgoing funds.

You might pay a one-time impact fee, sometimes called a transfer fee, if you are buying a home or condo in a housing development. You'll also pay your share of the development's annual association fees.

You probably won't pay all of the closing costs I've mentioned, but there might be additional fees that you will need to plan for, so ask your lender, your reality agent and your closing agent for an estimate of expenses you can expect to pay when you buy real estate in your area.
posted by Rick at 4/17/2006 09:27:00 PM

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