Closing Expenses

Closing on a property can be exhilarating, because at the end of the proceedings you'll have the keys to your new home. It's quite likely that you'll also have an empty wallet or purse, because at the closing you'll be expected to fork over the money for your down payment and other closing costs.

The down payment amount will vary depending on the purchase price of the property and the agreements you made with the seller and/or lender. For example, if you're buying a $100,000 home and putting 10 percent down, you'll need a cashier's check for $10,000 at the closing. But keep in mind that any earnest money you gave the seller will, in most cases, be applied toward the down payment. So if you gave $1,000 in earnest money, you'll only need to produce the remaining $9,000 for the down payment.

Based on local custom, some closing costs may be paid (or shared) by the seller, and others will have been paid before the actual closing proceeding. For instance, if your lender charged a loan application fee (which is technically considered a closing cost), you will have had to pay it at the time of application. You'll see these closing costs listed as "POC," (paid outside of closing) on the Settlement Statement. (FHA loans and VA loans, however, have different restrictions on what buyers and sellers are allowed to pay.) The following is a list of normal fees that you can expect to see at closing (but remember that who pays these fees – you, the seller or the lender – can almost always be negotiated):

Points. Depending on the loan package you selected, you may have to pay points. One point is equal to one percent of the loan amount. Points are usually tax deductible in the year in which they're paid. You may be able to negotiate with the seller to pay some or all of the points.

Loan origination fee. This fee is usually 1 to 1½ percent of the loan amount. Loan origination fees are not tax deductible.

Assumption fee. If you are assuming a mortgage, you may have to pay this fee.

Application fee. When you apply for the loan, you may be charged an application fee. This fee may run anywhere up to $350, and is paid at the time of application.

Credit report. At the time of application, you may be asked to pay the fee for checking your credit history. This fee can run from $30 to $60 and is sometimes included as part of the application fee.

Appraisal fee. Often (but not exclusively) paid at application, this fee runs from $300 to $700 if a physical appraisal is performed. If a database-driven electronic appraisal is used (the availability of this type of appraisal continues to grow), the fee is much less.

House inspection. To have the home inspected, you'll likely need to hire a professional inspector. This fee can run from $175 to $400 and is usually paid before closing (at the time of the inspection). A pest inspection is also normally required by the lender. You or the seller may have to pay this fee.

Processing fees. The lender may charge you various fees (also know as junk fees) for processing the loan. These fees may include a mail or delivery fee, a document preparation fee, an underwriting fee, and others. You can expect to pay from $100 to $400 when all of these fees are totaled.

Prepaid interest. Depending on the date that you close, you may have to prepay some interest for the month. To understand this, you need to know that the way mortgage payments are made is different from the way rent payments are made. When you own a home, you pay your mortgage payment in arrears. That means, for example, that your September 1st house payment pays for the preceding month of August – not September. When you close, you'll have to prepay the interest for the remainder of the month in which you close. Then you'll skip a month and start paying on the mortgage the following month.

Mortgage insurance. If your loan requires mortgage insurance, you'll need to pay at least some part of the premium at the time of closing (under some conditions, all or part of this amount can be financed into the loan). You may also have to prepay a few months' worth of insurance payments if required by your lender.

Homeowners insurance. You'll be expected to have a one-year prepaid policy on your home. This is usually paid POC and you must simply show the receipt. If the lender requires an escrow account, you'll also need to prepay a few months' worth of homeowners insurance payments into it.

Property taxes. Again, if your lender requires an escrow account, you may have to deposit reserves into it for property taxes. Additionally, you may owe money for tax prorations, or the seller may pay you money on the proration, depending upon how taxes are paid in your locale. For example, if the seller has prepaid taxes for six months, but lived in the house for only three months, he or she may ask for the fee to be prorated and for you to pay the other three month's worth. Any prorations should be spelled out in the contract.

Settlement fees. A fee of $150 to $400 may be charged for the services of the settlement company.

Attorney's fees. If you hired an attorney, you'll naturally be responsible for his or her attorney's fees. (Beware; sometimes lenders may also attempt to charge you a fee for the services of their own attorney.)

Title search and insurance. The lender will require a title search and title insurance. Expect to be charged anywhere from $150 to $300. Which party pays which fees varies depending on local custom.

Recording fees. You may be charged a fee for recording the deed and the mortgage. This can run from $25 to $75.

Transfer charges. Depending upon the location, some local and state governments charge transfer taxes.

Survey fees. The lender may require an unstaked survey to ensure that there are no encroachments on your property.

Condo and Co-op fees. If the type of property you purchased is applicable, you may be charged a move-in fee or association transfer fees.