Settlement costs are also known as closing costs. These are fees that lenders and third-party organizations charge the buyer for services when purchasing or refinancing a home.
Your Loan Estimate and Closing Disclosure forms should outline all your settlement charges applicable to your home loan. You will likely see:
Lenders charge an origination fee for processing a new loan application. In general, this fee is broken up into three charges: an underwriting fee, a processing fee, and an application fee.
Discount points are equivalent to 1 percent of the loan amount. You pay the amount upfront at closing in order to lower the interest rate on a loan.
This charge covers the cost of the evaluation of the home that determines the property’s market value. A professional appraiser does this assessment.
A title search fee pays for the cost of obtaining detailed information about a property and its owners. This search reveals any possible ownership problems before you purchase it.
Title insurance protects the homebuyer by guaranteeing that the owner has the title to the property and insures against any mistakes in the title search.
Lenders may require a property survey before finalizing the loan. This survey may reveal property lines, easements and possible encroachments on the property of others.
After the buyer signs the deed to transfer the property title legally, it is customary to file the deed at the local county recorder’s office. The government agency charges a deed recording fee for registering or recording the sale of a real estate property onto the public record.
Lenders usually charge the homebuyer the fee required to pull his or her credit report during the loan approval process.
Settlement costs usually come out to two to six percent of the total loan amount. Lenders charge different rates and fees. Additionally, third-party prices, such as for a land survey or a home appraisal, also vary.
For example, for a $300,000 home, you should likely expect to pay $6,000 to $18,000 in settlement charges on your closing day. This fee is paid on top of your down payment.
On closing day, the buyer should bring a cashier’s check that includes the settlement costs as well as the down payment. The final amount for the settlement costs can be found in the Closing Disclosure form, which the homebuyer should receive three days prior to the closing date.