Who Pays Closing Costs?

Please don’t assume that your down payment is all that you’ll need to close on your mortgage loan. You’ll also need to cover closing costs before you take control of your property.

Types of Fees With Closing Costs

All of the closing costs listed below will be itemized on your loan estimate and closing disclosure. Here are some of the standard fees you can expect to see (in alphabetical order).

Application Fee

A loan application fee may be charged by the lender to process your mortgage application.5 This fee is often nonrefundable and required to be filed upfront. Therefore, prospective buyers often ensure they have good credit and the capability of purchasing a home prior to filling out the mortgage application. For prospective buyers

Attorney Fee

A fee charged by a real estate attorney to prepare and review home purchase agreements and contracts.6 Not all states require an attorney to handle a real estate transaction.7 Some lawyers may charge a flat, fixed rate for the entire transaction while others may charge an hourly fee for time incurred.

Closing Fee

Also known as an escrow fee, this is paid to the party who handles the closing, which could be the title company, an escrow company, or an attorney, depending on state law.8

 This independent third party collects all closing costs and distributes proceeds to the appropriate parties involved in the real estate transaction. In some cases, this may be a fixed base fee in addition to a percentage of the loan value.

Courier Fee

If you’re signing paper documents, this fee helps expedite their transportation. This fee is only incurred if a courier is needed to delivery documents to a specific location for further signature by a specific time. If the closing is handled digitally or completing the transaction on-site without needing any additional external signatures (especially in a short timeframe), you might not pay this fee.9

Credit Report Fee

A credit report fee is a charge ($15–$30) from a lender to pull your credit reports from the three main reporting bureaus. Some lenders might not charge this fee because they get a discount from the reporting agencies.5 Alternatively, if a prospective buyer’s financial situation has materially changed during the search process or if the lender must renew their credit review, this fee may be incurred multiple times during the home search process.

Escrow Deposit

Some lenders require you to deposit two months of property tax and mortgage insurance payments at closing into an escrow account.9 Though this is technically not a fee, prospective buyers must treat it as additional upfront capital they must obtain as part of the closing process.

FHA mortgage insurance premium

FHA loans require an upfront mortgage insurance premium (UPMIP) of 1.75% of the base loan amount to be paid at closing (or it can be rolled into your mortgage). There’s also an annual MIP payment paid monthly that can range from 0.45%–1.05%, depending on your loan’s term and base amount.10

Flood Determination and Monitoring Fee

This is a fee charged to a certified flood inspector to determine whether the property is in a flood zone, which requires flood insurance (separate from your homeowner’s insurance policy). Part of the fee includes ongoing observation to monitor changes in the property’s flood status.8 These fees are relatively inexpensive (roughly $20 or less).

Homeowners Association Transfer Fee

If you buy a condominium, townhouse, or property in a planned development, you must join that community’s homeowners association (HOA). This is the transfer fee that covers the costs of switching ownership, such as document costs. Whether the seller or buyer pays the fee may or may not be in the contract; you should check in advance.9

The seller should provide documentation showing HOA dues amounts and a copy of the HOA’s financial statements, notices, and minutes. Ask to see these documents, as well as the covenants, conditions, and restrictions (or CC&Rs), bylaws, and rules of the HOA before you buy the property to ensure it’s in good financial standing and a place you want to live.

Homeowners Insurance

A lender usually requires prepayment of the first year’s homeowners insurance premium at closing.9 For first-time homebuyers, this may entail closing an existing renter’s insurance policy and transitioning to a newer, more comprehensive coverage plan. There are three types of homeowners insurance coverages: actual cash value, replacement cost, and extended replacement cost/value.

Lender’s Title Insurance

This is an upfront, one-time fee paid to the title company that protects a lender if an ownership dispute or lien arises that was not found in the title search.9 In some cases, the lender may not initially identify an issue with the title of a property. The buyer may also receive coverage against unforeseen title disputes.

Lead-Based Paint Inspection Fee

You can pay a certified inspector to determine if the property has hazardous, lead-based paint, which is possible in homes built before 1979. It can cost about $300.9 This type of certification is not required, though adding a lead-based paint contingency will likely weaken the overall offer proposal.

Points

Points (or discount points) refer to an optional, upfront payment to the lender to reduce the interest rate on your loan and thereby lower your monthly payment. One point equals 1% of the loan amount. In a low-rate environment, this might not save you much money.9

Owner’s Title Insurance

A title insurance policy protects you in the event someone challenges your ownership of the home. It is usually optional but highly recommended by legal experts. It usually costs 0.5%–1% of the purchase price.9

Origination Fee

The origination charge covers the lender’s administrative costs to process your fee and is typically 1% of the loan amount.11 Some lenders do not charge origination fees, but if they don’t, they usually charge a higher interest rate to cover costs.

Pest Inspection Fee

This is a fee that covers the cost of a professional pest inspection for termites, dry rot, or other pest-related damage. Some states and some government-insured loans require the inspection. It usually costs about $100.9

Prepaid Daily Interest Charges

This is a payment to cover any pro rata interest on your mortgage that will accrue from the date of closing until the date of your first mortgage payment.9 This amount will often be pre-set as closing approaches and will be adjusted if the closing date shifts from what was originally expected.

Private Mortgage Insurance (PMI)

If your down payment is less than 20%, your lender could require PMI, and you may have to make the first month’s PMI payment at closing.12 PMI protects the lender in the event that you should stop making payments on your loan. Sometimes, there is a one-time, upfront PMI premium paid at closing. Otherwise, PMI is more commonly a monthly premium added to your mortgage premium.

Property Appraisal Fee

This is a required fee paid to a professional home appraisal company to assess the home’s fair market value used to determine your loan-to-value (LTV) ratio. It is usually between $300 and $500.9 Many lenders will require a property appraisal to ensure property financial criteria are met regarding the property and the loan being incurred for that property prior to issuing the loan.

Property Tax

At closing, expect to pay any pro rata property taxes that are due from the date of closing to the end of the tax year.1 Similar to interest, the prorated amount will be set based on an anticipated closing date. Should this date get pushed back, the amount of property taxes assessed will change.