Settlement or Closing Costs Explanations
A buyer should know which closing costs to expect when purchasing a home. Some closing costs are required, where others are optional to the buyer.
Potential Closing Costs on a Purchase
Below is a detailed list of potential closing costs on a purchase involving a mortgage in NC, SC, and VA, including a definition of these costs.
Keep in mind that not all closing costs will pertain to your closing but it is important to understand these costs even before talking to your Realtor and Lender.
|Appraisal||$450 – $650|
|Credit Report||$25 – $100|
|Flood Certification||$8 – $15|
|Commitment/Underwriting/Processing||$395 – $995|
|Origination or Discount Points||$0 – 1% or more of the loan amount|
|Appraisal final inspection||$75 – $150|
|Tax Transcripts||$24 – $32|
|Attorney (title search & closing)||$575 – $950|
|Title Insurance (click here to calculate)||Depends on loan and purchase price size|
|Attorney overnight fee||$20 – $30 per package|
|Record Deed & Deed of Trust (Mortgage)||$56 – $120 depending on pages of documents|
|Termite Inspection (WDIR)||$60 – $125|
|Transfer Tax / Deed Stamps (normally seller cost)||$2 per $1,000 of the purchase price in NC|
|Daily or Per Diem Interest||Depends on interest rate & days left in month|
|HOA Transfer Fee||$65 – $95|
|HOA Working Capital Fee||Generally 2 months of HOA dues|
|Condo questionnaire||$150 – $300|
|Homeowner’s insurance 1st year||Depends on insurance quote from buyer’s agent|
|Property taxes due||Buyer’s portion of current tax bill|
|Escrow set up – insurances||2 – 3 months of insurances deposited|
|Escrow set up – property taxes||Depends on the time of the year for the closing|
|Survey||$300 – $1000|
|Home Inspection||$300 – $500|
|Water/Well Inspection||$50 – $150|
|Septic Inspection||$100 – $300|
|Other Potential Attorney Fees (esp in SC)|
|Title Binder Fee||$100 – $150|
|Courier Fee||$25 – $50|
|Overnight Fee||$25 – $50 per overnight package|
|Power of Attorney Preparation||$100 – $200|
|Manufactured Home Title Work & Retire||$150 – $800|
|Closing Protection Letter||$25 – $50|
Closing Costs Definitions
Appraisal Fees: Appraisal fees can vary depending on the location of the property, size and complexity of the property, the type of loan, and the appraisal company. A recent change is that appraisers recently have extra requirements added to their job on FHA and USDA appraisals, so these fees have increased with some appraisers.
Credit Report: The credit report fee depends on the number of borrowers, the vendor that the lender uses, and the services requested. Often an initial credit pull is not the only cost involved as often there are updates that need to be done on the credit because of verifying rent history, updating an account that hasn’t reported in a few months but still shows a balance, or other reasons.
Flood Certification: Lenders must determine if the structure (home) is in a flood hazard area. If the structure is in a flood hazard area, then flood insurance in a sufficient amount will be required to be in place at closing. Lenders generally require that the first year of premium is paid at closing and if the buyer is escrowing insurance into their monthly payments, then there will be an additional 2 – 3 months of the insurance premium collected at closing
Commitment/Underwriting/Processing: Lenders often will charge some level of fee such as this to help in offsetting the cost of processing, preparing closing packages, legal review of documentation, and other items that are included as one fee and not broken down individually so much. So these closing costs can vary widely.
Origination or Discount Points: Depending on a buyer’s scenario (credit score, product type chosen, etc), the rates for the time of a lock, and the buyer’s choice, this can vary from a lender credit to costing 1% of the loan amount. Additionally, if the buyer wants to buy down the rate to a point that is lower than the lender’s par rate, there could be additional discount points.
Appraisal final inspection: If the appraiser completes the appraisal in a manner which there are necessary repairs or access provided, then the appraiser will charge an additional fee to re-inspect and update the appraisal report.
Tax Transcripts: Lenders, as part of a fraud prevention, must request w2 transcripts, tax return transcripts, or both from the IRS to verify that the w2’s and/or tax returns provided by the buyer are actually the ones turned into the IRS.
Attorney Title Search & Closing Fee: The closing or settlement company will review the property ownership and lien history. This is to verify that the buyer is getting a home free and clear of any liens or encumbrances. In addition, the lender is provided assurances of their first or second mortgage position. The attorney or settlement agent will perform the closing which includes explaining the documentation and closing costs to the buyer and sellers, communicate with the lender, prepare and record documentation pertaining to the closing and transfer of title.
Title Insurance: The attorney or settlement company performs the title search mentioned above. Then the buyer and lender receive an insurance policy covering them against anything that the title search missed which could affect the ownership or lender’s lien position. Title insurance will vary a little from company to company but it is mostly based on the purchase price and loan size. Click here for a useful title insurance calculator for many states.
Recording Fees: The Register of Deeds will charge based on the number of pages for documents being recorded on a sale of real estate. Generally the documents recorded can be the deed, mortgage (deed of trust in NC), and Power of Attorney (if applicable).
Termite Inspection: Most buyers will obtain a pest inspection which is a good idea for our area because termites are prevalent. Sometimes even a termite inspection is required. Read this article “Don’t let your dream home become a nightmare because of unwanted guests”
Transfer Tax / Deed Stamps: In NC & SC, these costs are paid by the seller UNLESS it is specifically mentioned in the purchase contract that the buyer is to pay them. There are times that the seller will add that into a contract and it is important for the Realtor and Mortgage Lender to catch this so the buyer is prepared for this potential cost. In Virginia, the buyer will have to pay county and state tax stamps/revenue stamps which is a factor of the price and loan size.
Daily or Per Diem Interest: Because lenders put the due date as the 1st of the month typically and closings are usually not exactly on the 1st of the month, lenders will collect the number of days of interest from the closing date through the 1st of the next month to cover the partial month of interest due. The number of days is multiplied by the daily interest on the loan (daily interest is based on the interest rate, loan size, and term)
HOA Fees: If you are buying in a subdivision with a homeowner’s association or planned unit development (PUD), there are often fees paid to the association at settlement.
- Transfer or Joining Fee: This is an initiation type of fee basically covering the paperwork which the association or management company completes on each new owner
- Working Capital Fee: This is a fee paid at settlement to add funds to the reserves of the homeowner’s association and is generally 2 months of HOA dues paid at closing by the buyer
- Condo Questionnaire: When purchasing a condo, there are certain items that lenders need to know in order to determine if the condo complex is one that meets mortgage loan guidelines. Often a management company or the HOA will charge a fee to complete this form and this is usually paid by the buyer up-front.
Homeowner’s Insurance: At closing, the buyer must pay for the first year of insurance coverage. If the buyer is going to escrow for future taxes and insurance, it will pay for the next year’s insurance when due and so on.
Property Taxes Due: If the property tax bills are available and due, then the buyer and seller will pay for their portion of the current year’s taxes. For instance, if the closing is September, 30th the buyer will pay 3 months of taxes since the buyer will own the property October 1 – December 31. The seller would pay 9 months in this example.
Escrow Set Up – Insurances: Escrow accounts are funded with the borrower’s money and there will be an initial balance (usually 2 – 3 months of the insurance on a purchase) and then each month that a mortgage payment is made, 1/12 of the yearly insurance premium is added to the account. Then when the anniversary date of the insurance policy comes up, the mortgage company pays the insurance premium from the escrow account to the insurance company.
Escrow Set Up – Property Taxes: The amount of property taxes funded in the escrow account depends on the time of the year that the closing happens and when the property tax bill is not due. For instance, if the property taxes are due the next month, there will be a higher amount collected so there is enough in the account to pay the taxes. If the property tax bill is not due yet, the seller will give a credit to the buyer for the amount of the year that the seller owned the property.
Survey: Surveyors can be hired to determine the actual boundaries of the property lines. It can also determine where the house and other structures lie within or on those boundaries. Most buyers do not purchase a survey unless there appears to be an issue with these areas. When building a house, a survey is almost always done to make sure that the home is built in the correct area.
Home Inspection: A buyer will usually hire a licensed home inspector to test most of the house including electrical and plumbing, roof condition, crawl space, attic, and many other areas. The inspection report will detail the results of the inspection so that the buyer has knowledge of the overall condition as well as can decide if they need to back out of the contract or request a repair.
Water/Well Inspection: If the property has a well for its source of water, then it is a good idea to have the well water tested to make sure that it doesn’t have bacteria. This could would cause health issues. USDA and VA loans will require this test.
Septic Inspection: If the property has a septic tank, often a buyer will want to hire a professional to inspect the operation of it and to see if it needs to be pumped out. If the appraiser states that the septic tank must be inspected for some reason, then the buyer will be required to do so.
Additional Attorney Fees: There are other potential closing costs which could apply to your purchase such as preparing a Power of Attorney, retiring the title on a manufactured home, paying a courier that will pick up documentation from the attorney and deliver it to the courthouse for recording (Very common in Myrtle Beach), and miscellaneous fees which the attorney will incur and then charge to the buyer.