When you are shopping for a new home and meeting with a lender, “closing costs” will come up quite often. But what exactly are included in closing costs?
Please note that all items below that are labeled as a “fixed cost” are consistent at the MTEFCU, but the costs may differ at other financial institutions. Some of the names/labels for each of these fees may also vary depending on financial institution.
Fees and Charges
- Discount points: These are assigned based on your loan details, the LTV of the property, and your credit score. They are intended to get you the best interest rate by having you pay a little more up front. This particular fee is only charged for Fannie Mae conventional mortgages.
- Appraisal Fee: This is a fixed cost that is actually paid up front before the appraisal, so it is paid during the loan process instead of at the end during closing.
- Credit Report Fee: This is a fixed cost that covers the cost of running your credit report for the loan. Like the appraisal, this is part of closing costs but is paid earlier in the process.
- Recording Fee: This is a fixed cost that that covers the cost of obtaining the mortgage and deed for the property.
- Flood Certification Fee: This is a fixed cost that covers the cost of a flood certificate for the property.
- Origination Fee: This is a fixed cost that covers the processing done by the credit union and affiliates to complete your loan.
- Tax Service Fee: This is a fixed cost that covers the processing of the transfer of taxes to your name. This particular fee is only charged for Fannie Mae conventional mortgages.
- Title: There are two fees associated with the title of the property. The Lenders Coverage fee is an insurance policy that covers the lender if the title company makes a mistake during the preparation of the title transfer. The Closing Fee covers the cost of preparing and processing all of the closing documents.
Prepaid Costs and Reserves
- Hazard Insurance: This is your homeowner’s insurance. All mortgage loans at MTEFCU require that one year of Hazard Insurance is prepaid. Fannie Mae loans also require the prepayment of an additional two months.
- County/Winter Property Taxes: Prepayment of two months of Property Taxes is included in the closing costs.
- Interim Interest: Because the home becomes yours on closing day but you do not pay your first payment at least 30 days after, this covers the interest for the period between closing day and the end of that month.
The closing costs in this example are based on the following criteria and loan details:
- 30-year Fixed Conventional Fannie Mae Mortgage
- $75,000 purchase price
- Down-payment of 20% ($15,000)
- Single borrower
- Credit score of 700
Sometimes, you might only need to pay part (or even none) of your closing costs. This is entirely dependent on the negotiations you have with the seller when settling on the final terms. If the seller agrees to pay some (or even all) of the closing costs, it should be noted in your purchase agreement.