Closing cost are notoriously confusing to home buyers. Misunderstandings about these fees can lead to animosity toward real estate agents by their buyer clients. Those hard feelings result in the loss of valuable referrals from past clients, and perhaps, powerfully negative reviews shared by word-of-mouth and online. Your clients have a right to know how much they are paying for each service that is their responsibility. The Consumer Financial Protection Bureau (CFPB) is working to simplify forms and ensure home buyers clearly understand all aspects of the buying and mortgage process. Agents who explain closing cost to their clients in an authoritative, easily understood manner will set themselves apart from the typical real estate agent, and benefit from having their past clients enthusiastically recommend their services to others.
Closing cost are fees the buyer must pay in addition to their down payment. The following are typical closing cost charges that appear on the final HUD-1 settlement statement. For the buyer they should appear in section J of the settlement statement. Some charges may be paid out-of-pocket by the purchaser prior to the day of closing or will be paid with the loan. Those should appear in the 200s lines. The total the buyer needs to bring to the closing table is at the bottom. It is the total amount found on line 120 minus the the total amount of line 220.
Loan origination Fee
This fee is typically tax deductible. The loan originators are often paid based on the loan origination fee. It is negotiable and they may lower the fee just to get the business.
Loan discount
The loan origination fee buys down the interest rate by providing the lender with some money upfront. Each point is one percent of the mortgage amount. How much one point lowers the interest rate varies.
Document preparation fee
Also negotiable; some lenders do not charge for compiling the necessary documents.
Administrative fee
This fee typically covers the underwriting and document preparation fee. It is also negotiable and the amount varies by lender.
Funding fee or Wiring fee
This charge was unheard of years ago. Many consumer advocates say it is the lender's responsibility to get the money to you. Buyers should request they waive the cost of wiring the loan money to the closing agent.
Credit report
The lender or broker pay an outside company to complete your credit report. Some will try to make money themselves on the report by padding the actual cost. You can ask for a receipt to know the exact amount.
Appraisal fee
A professional appraisal is needed for purchase loans and for most refinance loans. It is another fee that is paid to a third party and the lender should not be inflating the cost to make money. Buyers can again ask for receipts and refuse to pay any upcharges.
Flood certification and hazard insurance
The flood certification fee is a survey done by an outside company to see if the home is located in a flood zone. Hazard insurance is required to protect the collateral of the loan. Buyers are not required to pay for an entire year upfront. Most lenders are satisfied with two to four months of coverage at the time of closing.
Recording fees
The county clerk charges this fee to officially record the purchaser as the new owner of the property. If the buyer refinances with a different lender, the fee will be necessary to change the lender's name on the record.
Tax stamps or recordation tax
When a property changes hands, it gives government an opportunity to charge a tax based on the purchase price. The amount is sometimes less for first-time buyers. Whether or not it is charged on refinances varies by county. Some charge based on the difference between the new and old loan.
Release of lien fee
The is charged by the closing attorney to have the county records changed to show that ownership of the property has transferred, and the previous owners and previous lender have no claims to the property.
Document prep and notary fees
Some documents must be notarized. Most attorneys have in-house notaries and still charge you for each page they notarize. Settlement agents, like the mortgage company, charge a fee for the legal documents they prepare.
Title search
This fee is charged for researching the history of the purchase property to ensure there is a clear title for ownership.
Closing fee
The charge for overseeing the closing and signing of all legal documents. The closing is typically held at the closing attorney's office.
The government does not regulate many of the fees charged by professionals in real estate transactions. It is important that buyers understand they have the right to shop around and choose the one offering the best rate.
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