Anyone who has ever been involved in assuming a mortgage, or even watched a few real estate shows on HGTV, is familiar with closing costs. But what exactly are closing costs? Here’s a quick rundown of these additional fees.
Simply put, closing costs are additional fees associated with processing the mortgage, and are not paid to the mortgage company. Generally speaking, closing costs are assumed by the buyer of the property (VA mortgages are one exception to this rule) and are paid at the time of closing of escrow. The bulk of closing costs is comprised of lender’s fees. These fees include the appraisal fee, which is an independent assessment of the value of the property being purchased, as well as the credit report and any property taxes. Lender’s fees also include mortgage and homeowner’s insurance, as well as any flood certification and pre-paid interest charges. These fees may also include origination and discount points depending on your lender, as well as loan application and loan processing fees.
Title fees are also part of closing costs. These fees include the title service fee, which covers the handling of title documents and funds, as well as half of the settlement and escrow fees, which cover the fees for the title search and examination. Finally, title fees also include any title insurance. Recording fees are another part of closing costs and include recording fees, transfer taxes and an affidavit of property value. HOA transfer fees and HOA dues are typically also included within closing costs.
While this is a quick overview of closing costs and is by no means an exhaustive list, I hope this has shed some light on these omnipresent fees in real estate transactions. Every transaction is different, and while I am unable to give legal, tax or accounting advice, I look forward to helping you navigate your own process with ease and clarity.