Closing Costs Explained

There are many ways to describe an object. When it comes to buying a home, don’t be confused by the rhetoric used by clever salespeople. Here is a quick overview of the COSTS involved with obtaining a home mortgage.

Category 1 – Lender Fees

  • Origination Fee (0% to 2.5% of loan amount) – a fee charged by the lender or broker to cover their costs and profit for managing the loan through the application, underwriting, and closing process. If there is no charge for origination fee, then the lender will be paying the fee on your behalf. Your cost for not paying the fee at closing is a higher interest rate over the life of your loan.
  • Discount Points – additional money paid at closing to buy down the interest rate.
  • Processing Fee – an additional charge by the lender to cover certain expenses that are incurred during the processing of a mortgage loan. You can expect between $500 to $1,000 in today’s market.
  • Underwriting Fee – Some lenders charge this fee instead of or in addition to a processing fee. The total lender fees should average between $500 to $1,000.
  • Doc Prep Fee ($100 – $200) – Fee for the preparation of the mortgage closing documents that will be sent to the closing attorney.
  • Other Miscellaneous Fee – There are many other fees that could be charged, but it is rare to see them in today’s market.
  • Lender Credit (created by raising the interest rate) – This is the opposite of paying discount points. If you are receiving a lender credit at closing, you are accepting a higher interest rate on your loan in order to do so. A common practice for lenders to make their closing costs look more attractive, this can cause you to pay substantially more for your home over a long term stay.

Category 2 – Title Charges

  • Attorney Fee/Settlement Fee ($450 – $750)- charge for the preparation of some of the closing documents and performing the closing.
  • Title Search ($150 – $250) – The attorney/title company will perform a search in the county courthouse to assure there are no liens that will interfere with you and the lender receiving clear title.
  • Insured Closing Letter ($35) – Lenders require the preparation of a special letter to be included in the closing documents that explains specific title insurance coverages.
  • Lender’s Title Insurance (% of loan amount) – this guarantees the lender of clear title, backed by the force of an insurance policy that will defend the title search done by the attorney in the event of a challenge.
  • Owner’s Title Insurance (% of purchase price) – this guarantees the homeowner of clear title, backed by the force of an insurance policy in the event of a challenge.
  • Miscellaneous Attorney Charges – there are many fees that can be charged depending on the nature of the transaction and specific situations. You will be notified early in the process of any of these fees. Be sure to read your official Loan Estimate carefully.

Category 3 – Services

  • Building Inspection* ($350 – $800 depending on size of home) – this is a voluntary inspection that assures the soundness of the structure and systems such as hvac, electric wiring, plumbing, water heater, etc.
  • Appraisal ($475 – $750 depending on size and location of home) – this inspection that establishes the market value of the property and is required by the lender in most transactions.

Category 4 – Taxes

  • Transfer Tax for Deed (sales price X .001) – The State of Georgia has declared a .1% tax on the sale of real property.
  • Intangible Tax on Loan (loan amount X .003) – The State of Georgia has declared a .3% tax on most mortgage loans.
  • Georgia Per Loan Fee ($10) – The State of Georgie levied a tax on mortgage loans to help pay for mortgage oversight activities of the department of Banking and Finance.

*OPTIONAL BUT RECOMMENDED

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