Common Closing Costs for Buyers
The lender must disclose a good faith estimate of all
settlement costs. A check to cover your closing costs will probably have to be
a cashier’s check. The title company or other entity conducting the closing
will tell you the required amount for:
- Loan origination fees.
or loan discount fees you pay to receive a lower interest rate.
- Appraisal fee.
- Credit report.
- Private mortgage insurance
- Insurance escrow for
homeowners insurance, if being paid as part of the mortgage.
- Property tax escrow, if being
paid as part of the mortgage. Lenders keep funds for taxes and insurance
in escrow accounts as they are paid with the mortgage, then
pay the insurance or taxes for you.
- Deed recording fees.
- Title insurance policy
- Inspection fees—building
inspection, termites, etc.
- Notary fees.
- Prorations for your share of
costs such as utility bills and property taxes.
A Note About Prorations. Because such costs are
usually paid on either a monthly or yearly basis, you might have to pay a bill
for services used by the sellers before they moved. Proration is a way for the
sellers to pay you back or for you to pay them for bills they may have paid in
advance. For example, the gas company usually sends a bill each month for the
gas used during the previous month. But assume you buy the home on the 6th of
the month. You would owe the gas company for only the days from the 6th to the
end for the month. The seller would owe for the first 5 days. The bill would be
prorated for the number of days in the month, and then each person would be
responsible for the days of his or her ownership.
What to Keep From Your Closing
- The Real Estate Settlement
Procedures Act (RESPA) statement. This form, sometimes called a HUD 1
statement, itemizes all the costs associated with the closing. You’ll need
for income tax purposes and when you sell the home.
- The Truth in Lending
Statement summarizes the terms of your mortgage loan.
- The mortgage and the note
(two pieces of paper) spell out the legal terms of your mortgage
obligation and the agreed-upon repayment terms.
- The deed transfers ownership
of the property to you.
- Affidavits swearing to
various statements by either party. For example, the sellers will often
sign an affidavit stating that they have not incurred any liens on the
- Riders are amendments to the
sales contract that affect your rights. For example, if you buy a
condominium, you may have a rider outline the condo association’s rules
- Insurance policies provide a
record and proof of your coverage.