Once you've been approved for a mortgage, found a house, made an offer, and the offer has been accepted, you are close to calling your property home. What's left is to finalize the documents which will transfer ownership of the house from the seller to the buyer. The "close" or "settlement" usually involves the seller, real estate agent, lawyer, escrow agent, mortgage lender and buyer, and title company.
How the process works
The escrow agent and title company will present you with a variety of documents to examine and sign; title, insurance, escrow, and others - each with their own fees. Expect to pay 3-5% of your mortgage amount toward closing costs. Most fees are negotiable, with lenders picking up some of the costs upfront, while others require some costs to be paid by the borrower upfront, or built into the cost of the loan.
Settlement Costs Estimates
FEE - Average Cost(s)
Administration - $250.00
Application - $250.00
Appraisal - $300.00
Attorney fees - $300.00
Credit report - $25.00
Document preparation - $150.00
Escrow - $735.00
Fire insurance - $300.00
Flood certificate - $20.00
Hazard insurance - $300.00
Origination fee (points) - $2,500.00
Pest Inspection - $150.00
Private Mortgage Insurance (PMI)** - $2,500.00
Processing - $4,500.00
Recording fee - $475.00
Tax services - $60.00
Title examination - $150.00
Title insurance - $300.00
Underwriting - $300.00
TOTAL = $9,165,000 (3.66% of $250,000)
* Based on a $250,000 mortgage. Costs may vary by lender.
** If down payment is less that 20% of the loan amount.
For a description of the terms above, please see our mortgage glossary.
What is Private Mortgage Insurance?
Your lender may advise you to set up an escrow account should your down payment be less than 20% or if you're a high credit risk. Less money down means the greater the risk the lender needs to assume. So to guarantee your property tax payments and private mortgage insurance (PMI) premiums, a small percent of your mortgage will be set aside each month to cover your payments. Your PMI rate will vary based on the mortgage amount and covers the lender in the event you default on your payment.
Should you pay extra for points?
Should you secure a lower interest rate on your mortgage you can expect to pay a certain percentage to the lender in the form of points. Points or origination fees are what lenders charge in interest to reduce the rate of the loan. It can be paid upfront or built into the cost of the mortgage. One point is equal to 1% of the mortgage amount (e.g., one point on a $250,000 loan equates to $2,500) which goes to the lender at closing.
Read an article on whether or not it makes sense to pay mortgage points.