We are all aware of what closing costs are, but what do you know about the closing fees that make up closing costs? Don't worry, I'm going to give a breakdown of the closing fees associated with closing costs. These are just the most common fees, but are not limited to these fees depending on your state.
Most people don't realize what all comes along with closing costs, but there are different components of what makes up the closing costs in total. Although there is no set amount, it can range from 1-10% of the sale price of the house, but it's because of all the things it's made up of. Let's start off with the first thing which is the actual loan origination fee which is charged for the mortgage application processing itself.
Next would be your appraisal fee which covers your home value assessment. This is built into your closing cost fees as the lender wants to know the true value of the home when working your loan application so that they'll know if the amount of money they're awarding you for the loan is close to what the value of the home is.
A lender may also charge you a credit report fee which covers the cost of your credit history. Some buyers often wonder why they're getting charged to have their credit pulled, but if they don't charge you it comes out of their pocket.
Title search fee which is done to ensure your title is free of any issues. Lenders charge what it would cost them to pull all this information and to ensure that when the home is signed over to you, you and only you are the proper owner of the home and no one can come and claim your home after your purchase.
Of course you know your home has to be inspected. This can be done either by the lender or by you depending on the type of loan you will use for financing. Most of the time if you're getting an FHA loan, the lender will have the home inspected as they have more strict rules as it comes to homes and how well the condition of the home is due to the loan being backed by the government. If you have another type of loan, you may be able to choose and pay to have your home inspected by an inspector of your choice. Home inspection identifies any potential issues the home may have and point out to have fixed before you purchase the home.
Escrow deposits are set in place to cover future insurance and taxes on the home. Most of the time this is done for almost every type of loan. Due to FHA being backed by the government, they are definitely going to have escrow deposits to ensure the insurance and taxes are covered. If you're using a conventional loan and do not pay a 20% down payment up front, you will also have to do an escrow deposit to cover those expenses for your taxes and insurance as well. These are collected at closing.
Of course since the attorney is handling the closing, they are going to collect their coins. Attorney fees are the legal fees you pay if an attorney is involved in the closing.
Lastly, the recording fees which are charged for documenting property records.
Hope this gives you a better understanding of all that comes along with closing fees. As always, happy house shopping and home buying.
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