When you get a mortgage, you might not know much about closing costs. Simply put, closing costs are the fees that you’ll pay when you close on your new home.
Okay, but what are closing costs?!
We get it. What you really care about is getting the right home, and the last thing you want to do is become an expert in finance. When you hear your banker tell you about a “Loan Commitment Fee,” your eyes probably glazed over before she finished her sentence.
Below is a primer on the typical closing costs that you might encounter when buying a house. You won’t see all of these every time, and sometimes lenders will call them different things (helpful, right?!), but you’ll have a much better sense of what’s going on before you get started.
Typical Closing Costs
Underwriting/Processing/Origination/Administration: It has a lot of names, and this will be one of the larger fees you’ll see. This is the amount that the bank is charging you to research and decide whether or not they’ll give you a loan.
Lenders Title Insurance: This covers your lender by making sure that you own the home and that the lender’s mortgage is enforceable. This protects them in case there is a problem with the title on your house. For example, if someone actually has an ancient claim to the land your house is on and sues for it, this fee makes sure the bank is covered for the amount of money that they loaned to you.
Borrower’s Title Insurance: Cost to buy insurance that protects you in the event someone challenges ownership of the home, just like in the example above. This is technically optional in most cases, but imagine how you’d feel if that person above sued you and you lost the house. That’s a lot of clams that you won’t get back.
Borrower Representation: Fee paid to an attorney for review the closing documents. There is a LOT of legalese when you sign to buy a home, and trust me, you’ll fee a lot better when someone who has “Esquire” following their name telling you what you should and shouldn’t worry about.
Document Preparation Fee: This covers the cost of preparing final legal papers like your mortgage or your deed. Dead trees ain’t free.
Closing Fee/Settlement Fee: Fee paid to a title company, escrow company, or attorney for conducting the closing. There’s a lot of stuff to organize and guide you through, including signing many, many, many papers. This is like your shaman on your closing journey.
Tax Service Fee: An amount that goes toward making sure your property taxes are paid on time. Late taxes = bad.
Appraisal Fee: Fee paid to an appraisal company to confirm the fair market value of the home. Basically, when you’re getting a loan, you and the bank both need to know that you’re not paying more than the house is worth, because that would expose you and them to a lot of risk if things went sideways. When you’re buying, you’ll be happy as long as your house appraises for at least what you’re offering on it. If it doesn’t, the bank might not give you a loan.
Credit Report Fee: Cost for generating a report of your credit history and score. This is the same type of credit report that you’re probably used to, and it’s a major factor in determining the interest rate on your loan.
Flood Certification Fee: Paid to determine whether the property is located in a flood zone and needs flood insurance.
IRS Transcript Fee: “Death and taxes, or whatever.” Your bank might want a verified record of your tax filings, to make sure you actually make what you say you do.
Title Examination: Fee paid to a title company for reviewing property records, researching the deed, and making sure no one else has claim to the property. The two types of title insurance above cover the case where they miss something in this process.
Municipal Lien Certificate: A certificate issued by the town treasurer. This states the amount of property taxes that are assessed on the property.
Recording Fee: Charged by the local recording office, usually the city or county, for the recording of public land records. This makes sure that it’s publicly stated that you now own the property.
Notary Fee: Charge for having a notary public swear that you personally signed everything. Also, they have a really badass stamp.
Courier Fee: Paying for transporting the documents to complete the transaction as quickly as possible. Just imagine your mortgage zipping down the road in a bike messenger’s saddle bag.
Home Inspection: This isn’t technically a closing cost, but it’s something that you’ll probably pay when you buy a house. This is a fee to have a licensed inspector verify the condition of the property and to check for any home repairs that might be needed before closing. There are a few types of inspections that are common, such as a general building inspection, checking for lead paint, pests, or radon in the air or water.
Other Important Terms to Know
These aren’t “closing costs,” but they are things that you’ll see talked about at the same time, so you should know about them.
Title: A record that shows who owns a property.
Mortgage: A loan backed up by title to a property. This means that in case you can’t keep paying the loan, your house is what secures (or is the “collateral” for) the loan for the bank.
Loan Amount: This is the amount of money that you’re actually borrowing from the bank to buy the house. Most people think of this as just being the actual “mortgage.”
Down payment: The upfront portion of the total amount due on your house. This is usually paid in cash at close. Really, probably check or wire transfer–we don’t suggest bringing a suitcase full of $100 bills with you.
Prepaids: Costs related to your home that that you pay at closing in advance of their actual due date, like taxes, insurance, and interest. For example, you’ll “prepay” property taxes for some duration following close, even though it’s not due to your town yet. These aren’t considered “closing costs” because they’re technically paid for after the close.
Overwhelmed yet? Bad news: There are a LOT of fees that you’re responsible for when you buy a house, and they add up fast. But there’s good news! When you use Torii, you don’t have to worry about a single one of those fees, because we pay them all for you.
We’ll do all the work to make sure everything above gets taken care of, and we’ll cover all the costs out of the fee that we get paid for helping you. Not bad, eh?
If you’re thinking about buying a house and want to learn more, hit us up. We’re always happy to chat about that, or really, whatever is on your mind right now.