What happens at closing?
What are statutory costs?
What are third-party closing costs?
What are finance and lender charges?
At the closing, ownership of the newly purchased home is officially transferred
to you. It may involve you, the seller, the real estate agent,
representatives from the title or escrow
firm, and a variety of clerks, secretaries, and other staff. Closing can take as little time
as an hour to sign all the forms and transfer ownership or it can take several
hours, depending on the contingency clauses in the purchase offer (and any escrow
accounts that may need to be set up). Make sure you have eaten and have water with you. You do not want to be rushed when closing on your new home.
Before you close on the house, you should have a final inspection, or walk-through,
to make sure any repairs you requested have been made and that items which were
to remain with the house (drapes, light fixtures) are still there. This is when you must call attention to any problems or issues you see with the home that should not be present.
In most states, settlement is done by a title or escrow firm to which the appropriate cashiers' checks,
and the firm will make the necessary disbursements. The real estate agent or
another representative of the title company will deliver the check to the seller
and the house keys to you.
Statutory costs are expenses you would have to pay to state and local agencies even if you paid cash for the house and did not need to take out a mortgage. They vary by state and county. They include the following:
Pro-Rated Taxes Taxes such as school taxes and county taxes may have to be split between you and the seller because they are due at different times of the year. If taxes are due in October and you close in August, you would owe taxes for 2 months while the seller would owe taxes for the other 10 months. Pro-rated taxes usually are paid based on the number of days (not months) of home ownership that has transpired.
Recording Fees These fees pay for the county clerk to record the deed, mortgage, note and change the property tax billing so that it is updated. This is done for home purchase and refinance transactions.
State and Local Fees These include mortgage taxes levied by states as well as other local fees that may be induced by local authorities. The state tax for mortgage loans in Georgia is .3% of the loan amount.
Transfer Taxes These are required by some localities to transfer the title and deed from the seller to you. These will vary by locale.
Third-party closing costs are expenses paid to others such as appraisers, title insurance companies, or escrow companies. Examples of third-party costs are as follows:
Appraisal Fee This is how the value of the home is verified. Recent comparable sales from local homes are used to gauge your home's value.
Attorney Fees Attorney requirements vary by state. Most states do not require attorneys. Attorneys usually charge a percentage of the selling price (three-fourths or 1 percent), but some may work for a flat fee or on an hourly basis. If attorneys are required in your state, your realtor should have information that will help you answer your questions.
Homeowner's Insurance Most lenders require that you prepay the first year's premium for homeowner's insurance (sometimes called hazard insurance) when you purchase a home. This helps to insure that their investment will be secured, even if the house is destroyed. Refinance transactions do not have this requirement. You will prepay some insurance if you set up impounds, but that is it in a refinance loan.
Inspection Fees In most purchase scenarios, a termite inspection is required. In many rural areas, lenders will require a water test to make sure the well and water system will maintain an adequate supply of water to the house (this is usually a test for quantity, not a test for water quality).
Real Estate Agent's Sales Commission The seller pays the commission to the real estate agent. If one agent lists the property and another sells it, the commission usually is split between the two. It's important to keep in mind that even the commission is negotiable between the seller and the agent.
Survey Some lenders will require that the property be surveyed to make sure that no one has encroached on it and to verify the buildings and improvements to the property. This is only used under special circumstances as an appraisal is usually enough for most lenders.
Title Search Costs The title company or your attorney will arrange for the title search to make sure there are no obstacles or encumbrances (liens, lawsuits) on the property. This is how the owner of the property is verified. Nothing could be worse than buying a home from somebody that didn't actually own it!
Most people associate closing costs with the finance charges levied by mortgage lenders. The charges you pay will vary among lenders. You may have to pay the following charges depending on your lender:
Credit Report Fee A credit report is required on all purchase and refinance transactions. This is how the lender gauges your creditworthiness.
Discount Points A point is equal to 1% of the loan amount borrowed. Points can help you buy the rate down and get a lower rate. Points are typically tax deductible, but different deductibility rules apply to second homes. Your tax advisor can clarify these points for you.
Document Preparation Fee You will see an amazing array of papers, ranging from the application to the acceptance to the closing documents. This fee covers the cost of drawing docs.
Escrow Account An escrow account or impound account is a fund into which you will make monthly payments for taxes, homeowner's insurance, and PMI (mortgage insurance, if required). These monies are collected on a monthly basis and will pay your insurance and tax bills when they come due every six month. The goal is to have these monies put aside in small amounts every month versus having a large lump sum bill come due every six months.
Origination Fees These are fees for processing the mortgage application and may be a flat fee or a percentage of the loan amount.
Prepaid Interest Your first regular mortgage payment is usually due about 6 to 8 weeks after you close (for example, if you close in August, your first regular payment will be in October; the October payment covers the cost of borrowing money for the month of September). Interest costs, however, start as soon as you close. The lender will calculate how much interest you owe for the fraction of the month in which you close (for example, if you close on August 25, you would owe interest for 6 days). In some cases this is due at closing. In a refinance transaction you will also owe monies to your old lender. In the previous example you would owe 25 days to your old lender. In a refinance you are typically paying about one month's worth of interest in the transaction every time you refinance. This is offset by the first month gap in which you will NOT make a mortgage payment immediately after refinancing.
Private Mortgage Insurance (PMI) If your down payment is less than 20%, many lenders will require that you purchase private mortgage insurance (PMI) for the amount of the loan. This way, if you default on the loan, the lender will recover lost monies. These insurance premiums will continue until your principal payments plus down payment equal 20% of the selling price, but they may continue for the life of the loan. Calculator Mortgage Rates Colorado 5280 has many solutions that do not require private mortgage insurance.
Mortgage Loan Resources 
