Mortgage closing costs and fees
Closing costs and fees
Closing costs can sometimes catch homebuyers off-guard.
Take some time to understand what closing costs are and plan accordingly.
Closing costs 101
Closing costs are the fees that you'll pay before you get the keys to your new home. Some of these fees will be paid upfront, while others will be due at closing. A few days before closing, you’ll receive a Closing Disclosure that will outline all of the costs and fees you’ll need to pay.
Here are a few of the most common closing costs:
- Appraisal fee— Covers the cost for the report that shows the estimate of the home's market value
- Attorney fees— Covers legal representation to prepare and record documents
- Origination fee— Covers loan processing and administration
- Underwriting fee—Covers the cost of reviewing your mortgage application
- Title fees— Covers the search to verify there are no tax liens on the property and for insurance to protect you if a problem is discovered.
Title insurance is an essential part of homebuying. It insures that you're the only owner of the property and insures that the seller has the right to sell you the property. It also insures that all taxes are paid on the property before you close.
Each state has different regulations for title insurance. The amount you pay is determined by the price of the home. Title insurance is a one-time fee that you'll pay at closing.
Watch the video in this section.
Buying a home is one of the biggest investments you’ll make and homeowner's insurance can help you protect that investment.
Generally speaking, homeowners insurance helps protect your home and personal property against loss or damage. Depending on the type of coverage you get, covered damage may include fire, severe weather, vandalism and theft. A separate flood policy may be required if the property is in a Special Flood Hazard Area (SFHA). Homeowners insurance also includes general liability coverage that can protect you if someone is injured on your property. Most mortgage lenders will require you to have homeowners insurance at the time of closing and for the duration of the loan. Remember, each policy is different, so be sure to discuss options with your insurance company.
Property tax, as the term suggests, is a tax you'll pay for owning your home (you might also hear this referred to as real estate tax).
The amount you pay is determined by your local government based on the location of your home and how much it’s worth. Property taxes typically cover services like garbage collection, road maintenance and snow removal, as well as education, law enforcement and the fire department.
Using an escrow account to pay taxes and insurance
An escrow account is an account set up with the lender or mortgage servicer (usually at closing) to pay your property taxes and/or insurance.
Here's how it works: part of your mortgage payment includes taxes and insurance. Your lender takes that money and puts it into an escrow account for you. The money in the escrow account is used to pay your property taxes and insurance when they're due. One of the biggest benefits of having this account is that it spreads your tax and insurance payments out over 12 months, so you won't get hit with a large bill at the end of the year.