Many fees are part of buying a house, and they must be settled at closing. The buyer is responsible for most of these fees, although some may be negotiated. These costs are clearly reflected in the Good Faith Estimate (GFE) provided by the mortgage lender. In the case of all-cash deals, the attorneys and/or real estate brokers provide a breakdown of these costs. Buyers unfamiliar with the process should seek several estimates from different lenders to ensure the fees they are being quoted are fair.
Points and Application Fee
Origination and discount points represent a percentage of the final loan figure. For instance, on a $200,000 loan, two points comes to $4,000, or 2 percent of the loan amount. This goes to the lender upon closing. Generally, paying more points (typically 1 to 3 percent) lowers the mortgage's interest rate, a prudent move if the buyer intends to remain in the home for many years. The origination aspect covers the lender's evaluation and preparation of all mortgage documents. The application fee goes toward processing costs, which must typically be paid when filing the initial application.
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Title and Appraisal Fees
A title search ensures that the property is clear to be sold and delves into its historical records, including court documents, deeds and owners. This guarantees for the buyer that the property legally belongs to the owner and that no liens, unpaid taxes or other encumbrances can otherwise delay or nix the sale. Title insurance provides additional buyer protection in case the title search did not uncover any hidden problems, whether deliberate or inadvertent. The appraisal fee provides an independent assessment of the property's worth, representing crucial information to both buyer and lender.
Credit Report and Survey Fees
Mortgage lenders usually access credit reports from the three major credit bureaus, TransUnion, Equifax and Experian, a cost that buyers absorb. A property survey covers the legal boundaries of the land and is designed to uncover any discrepancies with neighboring properties that may arise, which are disagreements always best addressed before settlement.
Transfer Taxes and Total Closing Costs
All transfer and prepaid property taxes are assessed at closing, due to the appropriate state, county and city agencies. According to Freddie Mac, closing costs generally come to between 2 and 7 percent of the home's price. The real estate broker's commission can amount to another 5 or 6 percent, and although normally borne by the seller, can be subject to negotiation between buyer and seller.