Who Pays for What? How Much Will I Need the Day of Closing?
Although most of us have heard the phrase “closing costs”, not many people really understand what’s adding $10,000 to $20,000 (and more) to the cost of purchasing a home. Even those of you who have spoken with a mortgage lender, and received a “Good Faith Estimate” of closing costs, do not fully understand where all that money is going. Let’s look more closely at what you’re actually paying for and why. The following applies to houses and condos. Co ops (which are not real estate) will be the subject of another article.
Closing costs are comprised of bank charges, paid to the bank, and title charges paid or remitted to the title company. Individual items can vary widely between lenders and title companies. Some charges are discretionary (the lender or title company can waive them), and some are not.
(sometimes called loan origination fee or discount fee)-One point is equal to 1% of the loan amount. When you pay points you are literally buying down the interest rate of your loan. If you are short on cash, elect not to pay points and pay a slightly higher interest rate for the life of the loan. If you have sufficient cash, you may want to pay points to obtain a lower interest rate. You usually have a choice (borrowers with poor credit may not have this flexibility).
Banks require an appraisal of the house before they’ll agree to make the loan. This fee is approximately $550.00.
Application Fee, Document Review Fee, Underwriting Fee, Post Closing Review Fee:
These are various discretionary lender charges which basically amount to the passing along of the bank’s overhead costs to you. They can total $2,000.00 or more and they are negotiable.
Tax Service Fee, Flood Certification, Credit Report:
These are small charges that respectively, provide for your tax bills to go directly to the lender, certify whether or not the house is in a flood zone, and advise a lender as to your creditworthiness.
Lender Attorney Fee:
You pay the fee of the banks’ attorney to prepare the loan documents and attend the closing. This fee is approximately $1,000.00. In “piggyback” loan arrangements (80% first mortgage and 10% credit line), an additional fee may be charged by the attorney for the second loan. Be careful if your contract requires a closing in a particular county, that your lender assigns the closing to an attorney in that county to avoid a travel fee to the seller’s attorney.
Per Diem or Prepaid Interest:
Since lenders want their payments on the first of a month, at the closing you pay interest on your mortgage from the date of the closing to the end of that month. Thereafter your first mortgage payment is not due until one full month later. Per diem interest is computed by multiplying the loan amount times the interest rate and dividing by 365 days and then multiplying times the number of days left in the month you close.
Most lenders require that they pay your real estate taxes and homeowner’s insurance. Although you will be required to purchase a homeowner’s policy for a one year period before we can schedule your closing, we pay several months’ worth of premium to the bank at closing to start the escrow fund. The same is true for real estate taxes and the amount needed to start the escrow fund depends on the amount of the taxes and when the next tax payment is due.
This is an insurance coverage for loans exceeding 80 percent of the appraised value of the home, which insures the lender against the borrower’s default. Your lender will advise as to this amount. It is sometimes prepaid at closing, and sometimes paid out over the life of the loan.
Title insurance premium:
The premium for title insurance is determined based on the purchase price of the house and the amount of the mortgage. These fees are controlled by statute and do not vary between companies.
The title company charges for their searches of the building department, highway department, tax report, bankruptcy searches, Patriot Act searches and so on. Otherwise, fees may total $1,000.00.
These fees vary by county but recording the deed and mortgage at the county clerk's office can easily total $1000.00.
All purchasers pay mortgage tax to the state. The tax varies by county.
It is customary to pay an appearance fee to the title company representative at the closing. Although this is not required (since it is in the nature of a gratuity), title closers perform a vital function and provide many services which make a closing proceed quicker and smoother.
Most lenders require purchasers to have a survey of the property (an overhead view drawing of the land and house). If a seller has a survey to pass along, an update of it costs approximately $150.00. If a new survey is necessary, fees vary based on the size and shape of the lot and are between $700.00 to $150.00. Individual price quotes are obtained. We always recommend that you obtain a new survey guaranteed to you.
SELLERS HAVE CLOSING COSTS TOO
If you are selling there are costs to be paid as well:
It is best to list with a full service realtor. You should agree in advance with the realtor for a fair commission that allows the realtor to be adequately paid to show and advertise your home.
You must pay off your existing mortgage at the closing. We will assist you in obtaining a “pay off letter” from your lender. The mortgage is paid from the sums the purchaser pays you..
You will pay a fee to record the satisfaction of the existing mortgage at the county clerk’s office. This cancels the loan. The title closer charges a “pick up fee” for seeing to it that the mortgage payoff gets to the lender and that the satisfaction is recorded. This fee is approximately $250.00.
All New York sellers pay transfer tax to New York State of $4 per thousand dollars of selling price. New York City sellers pay an additional 1% to the City. Other municipalities may charge their own transfer tax.
Feel free to call or email our office with any questions you may have. We are happy to review any Loan Estimates.