Breakdown: Closing Costs Explained

The day has come…it’s time to close on your home. It doesn’t matter if you’re the Seller or the Buyer; a real estate closing isn’t cheap.   When you sit down at the closing table you’ll review and be asked to sign a HUD-1 Settlement Statement. This document itemizes every single charge and fee involved in the transaction and identifies who is paying for what. It can be overwhelming to see all those numbers and line item description. Below we’ve broken down the most common closing costs and fees you’ll see.

Commission (Seller)

Realtors earn their pay only when a property transfers owners at settlement. The amount of commission is calculated based on a rate previously negotiated by the Seller when the property was listed (usually 6% of the sales price).

Mortgage Fees (Buyer)

Mortgage fees vary widely from lender to lender. The most common charges you’ll see are “appraisal fee”, “credit report”, “processing fee”, and “origination fee or charge”.

In addition to these fees, there are certain monies the lender will require up front including the daily interest due on the loan from the day of closing to the end of the month, mortgage insurance premium for one year (if your down payment is less than 20% of the mortgage), homeowner’s and flood insurance premiums for one year and property taxes. If your mortgage includes an escrow account for taxes and insurance, the lender will require you make deposits into the escrow account at closing.

Title Insurance (Seller & Buyer)

Next to the mortgage, title insurance is such a crucial part of a real estate transaction. Title insurance protects the buyer’s ownership position (and the mortgage company’s lien position) in the chain of title (ownership). If a previous owner was to come back and try to claim the property was still theirs or a prior mortgage company claims their lien was not paid in full, the title insurance underwriter would defend, and in some instances pay out, on any loss you may experience.

It takes a lot of work to issue a clear title at closing that’s why you’ll see charges on your settlement statement labeled “owner’s title policy”, “lender’s policy”, “title exam/abstract fee” and “settlement fee”. Additional fees can be added if the property in located in a Condominium or Planned Unit Development and additional endorsements are needed for the insurance policy.

Recording Fees (Seller & Buyer)

After the Sellers have signed the Deed and the Buyers have signed the Mortgage, the title company will send the documents to the County Clerk’s office to have the documents recorded in the public record. This helps protect the integrity of the chain of title. Each County Clerk sets their own fee schedules so fees can vary county to county.

In addition to recording fees, the State’s Department of Revenue levies a Documentary Stamp Tax on Deeds and Mortgages, among other documents. The rate for Deeds is seventy cents ($0.70) per every $100 of the transaction and thirty-five cents ($0.35) per every $100 of the value of the mortgage. The title company is responsible for collecting these monies at closing and delivering them to the County Clerk at the time of recording. The Clerk will then submit the monies to the Department of Revenue.

Miscellaneous Fees (Seller & Buyer)

The title company and any third party vendors involved in the sale of the property will want to be reimbursed for charges they advanced to get the transaction to the table. These charges can include overnight fees, tax research service fees, survey, wire fees, notary fees, and flood zone research.

Each transaction is different but these are the most common items you will see on the settlement statement.  If you have a question about a fee or charge, speak up and ask for an explanation before you sign.