What are closing costs in a real estate mortgage transaction?
The term “Closing Costs” consist of two items, “closing costs” and “pre-paid items”.
These two terms make up “Closing Costs”, which is why asking the question, “what are my
closing costs”, is difficult to answer or you get a wide variety of answers.
Let me break it down a little better. What does the item “closing costs” consist of?
They include but are not limited to the following:
- Origination fee
- Discount points
- Underwriter fee
- Processing fee
- Administrative fee
- Credit report
- Tax service fee
- Title services
- Title insurance (Lenders &
- Pest inspection
- Government recording fees
- Transfer Taxes
The above listed items are costs associated with your real estate transaction.
“Pre-paid Items” are your costs that are required to be paid in advance or at the closing
of your real estate transaction.
- One year of home owners (hazard)
- Escrow, 2 or 3 months of taxes and
insurance to establish your escrow account if required.
- Daily Interest Charges
So, why do you get so many different answers? It’s all in the perspective. A preliminary HUD-1 may only give you Title Service fees, other HUD-1’s may also provide Title
Service Fees along with government recording fees and transfer taxes. When you ask “what are my closing costs” and you receive an answer, the next question you ask is “what does my closing costs consist of?”
Your loan officer is the only person who can give you an all-around picture of all the
estimated closing costs and pre-paid items. You, the homebuyer, decide who and
how much to pay for homeowner’s insurance and other shoppable services.
The exact overall closing costs won’t be known until you have a “clear-to-close” and a
specific date to close. This is when the Lender and Title Company prepare your
closing statement (HUD-1) in advance of your closing on your real estate transaction.
For more detailed information, you may consider U.S. Department of Housing and Urban Development’s Settlement Costs Booklet. You can get this at any mortgage lending institutions or from your Mortgage Loan Officer or call me, Jim Marcinkowski