Once your loan is approved and the surveys and assessments are done, buyers and sellers go to settlement, or closing. This is one of the most complex parts of the home buying process, involving escrow agents, attorneys, title companies and real estate brokers.
Within three days of applying for a loan, a mortgage lender is required to provide a "good faith estimate" of what settlement will cost. They will also provide you, the buyer, with a booklet entitled "Settlement Costs," issued by the Department of Housing and Urban Development.
With this book and the estimate, you should be able to understand what will be expected at settlement.
Basically, settlement fees are divided into three categories: charges for establishing and transferring ownership, government charges and mortgage loan costs.
Under the first category, you'll have a title fee -- money paid to a title company to ensure the seller owns the home outright and is legally able to sell the property. Title insurance (a lender-required policy that covers the lender if a mistake is made by the title company and the seller's ownership is challenged) is needed. You'll also be subject to transfer fees, taxes required by some states and local governments to transfer ownership.
In government charges, you will have the transfer fees, the fees to record the sale in county records and any pre-paid property taxes.
The costs of acquiring a loan make up the bulk of the settlement fees. They include: survey costs, assessment fees, credit checks, loan origination and processing fees, notary public costs, loan documentation fees, hazard insurance, inspection fees (for the lender), termite inspections, interest prepayments and points. Points are charges imposed by the lender to increase their yield past the stated interest rate of a loan, one point equaling one percent of a loan.
The buyer is required to pay some of these costs, but many of them are negotiable. However, such negotiations are usually incorporated into the contract and are not flexible after the contract is signed. Also, some items, like points, can be rolled into the loan amount.
Other expenses at settlement include prepaid homeowners' insurance, homeowners' insurance escrow and real estate tax escrow.
Many of these fees are set, but costs can be lowered on some charges by shopping around. Title companies, termite inspectors, home inspectors, surveyors, appraisers and attorneys all vie for your business; search for the best deals.
