We have tried to put together a complete list of closing costs. Some of these costs may not apply to you.

Appraisal Fee
This is charged to pay an appraiser to research and assess the market value on the property on which a mortgage is being placed. This fee may be charged in conjunction with a mortgage application fee instead of being charged separately.

Attorney Fees/Title Examination Fee
These fees (generally expressed as either a title search fee or a title examination fee) are charged to pay for the cost of researching and/or examining the records of the county in which the property lies to determine that the title to the property is free and clear of all defects, liens and encumbrances that could affect the use and/or value of the property. In North Carolina, the closing attorney normally does the title search and obtains title insurance.

Commitment Fee/Underwriting Fee/Processing Fee
The are types of fees charged by some lenders to offset the costs lenders incur in reviewing, underwriting and processing a borrower’s application for a mortgage loan.

Courier/Messenger Fees
This fee pays for overnight courier services and messenger services used to transport documents to and from the lender and to and from the local county courthouse where the deed and mortgage are recorded.

Credit Report Fee
Sometimes called an Application Fee – This is charged to cover the cost credit service bureaus charge to provide the lender with a report detailing a borrower’s credit history. This fee may also be part of a mortgage application fee instead of being charged separately. This fee is used to pay for items like credit reports, automated loan approvals, income verifications and other fees charged by outside sources to provide information to the lender.

Document Preparation Fee
This is sometimes charged by lenders to offset costs associated with preparing paperwork for a loan closing.

Flood Certification Fee
Fee charged by flood companies to determine if a property is located in a flood hazard area. The service includes a life of the loan provision so that if flood areas change, the lender will be notified. If a property is located in a flood hazard area, flood insurance is required.

Hazard Insurance Escrow
Similar to real estate tax escrows, many lenders require that they collect 1/12 of the property’s annual hazard insurance premium with each mortgage payment to fund an escrow account from which the lender will pay the premium when it becomes due. (Hazard insurance is property insurance that you are required to purchase to cover any damage that may occur to the property itself or to someone while in or on the property.) Even though in a purchase transaction you are required to pay the first year’s premium prior to or at the closing and in a refinance transaction the insurance may be paid up for several months following the closing, the escrow insures that the lender will have enough money in your escrow account when the premium next becomes due. The lender is also entitled to collect an additional amount to provide a one to two months “cushion” in your escrow account. At closing, hazard insurance escrow requirements generally range from two months in purchase transactions to anywhere from one to eleven months in refinance transactions.

Home Inspection Fee/Termite Inspections
Not all lenders require home or termite inspections, but on purchases of preowned homes, a complete home inspection is strongly recommended.

Mortgage Insurance (PMI)
In the event that the loan you are requesting from the lender exceeds 80% of the purchase price or market value of the property being mortgaged, the lender will generally require you to pay for obtaining a mortgage insurance policy. This protects the lender if you default on your loan and the equity in the property is not sufficient to cover any losses the lender incurs as a result of that default. The cost of PMI is determined by your credit score and the amount your loan to value exceeds 80%. PMI can normally be removed once your loan balance reaches 80% of value.

Origination Fee
Most lenders include an origination fee from 0%-1% as a part of your closing costs when quoting rates. The amount of origination fee is directly related to the interest rate.

Points
This cost is optional and a direct cost by the Lender to be able to buydown your interest rate. One point equals 1% of the loan amount. In a typical transaction, a borrower pays from 0-2 points to the lender. The number of points is directly related to the interest rate charged by the lender. The more points a borrower pays, the lower the interest rate. One has to think about if the savings in the payment from the buydown offset the cost of the buydown in the timeframe you plan to be in your new home. Rule of thumb calculation: .125% on the rate - .50% of the loan amount is cost (approx.).

Prepaid Interest
At the time you obtain a mortgage loan your first payment is generally due on the first day of the second month following your loan closing. That is because mortgages are generally paid “in arrears”. (In other words, the payment being made on the first day of the month is for the interest due for the month preceding the payment.) For example, if you close on the 15th day of January, your first payment will be due on March 1 and that payment will pay for the interest accrued during the month of February. Therefore, the lender at closing will charge you for the interest due for the period from the date of the closing to the beginning of the following month. (In our example, that period would be from January 15 to February1.) As a result, depending on the day of the month in which you close, prepaid interest can be from 0 days to 30 days. Prepaid interest (on a per diem basis) is calculated by multiplying the loan amount by the annual interest rate and dividing that number by 360 or 365 (depending on the lender).

Real Estate Tax Escrow
Many lenders will require that they collect 1/12 of the property’s real estate taxes with each monthly mortgage payment. The lender will make the real estate tax payments as they become due from a tax escrow account. Since real estate tax payments are due at different times during the year, the lender may need to collect all or a portion of the next real estate tax payment at the time of your loan closing (depending on the month in which the closing occurs). This will insure they have enough money in your escrow account when the next tax bill is due. The lender is also entitled to collect an additional amount to provide a one to two month “cushion” in your escrow account.

Recording Fees
Typically charged by the local governmental agency responsible for recording deeds, deeds of trust and other legal documents (Register of Deeds). Recording fees are usually based on the number of pages recorded.

Survey Fees
This fee is charged to pay a surveyor/engineer to survey the property being mortgaged and prepare a “plot plan” which includes a certification that the structures and other improvements on the property do not violate any property laws and do not encroach upon anyone else’s property.

Tax Service Fee
Covers the cost of setting up and maintaining an escrow account to pay annual property taxes.

Title Insurance Fee
This fee is charged to pay for a title insurance policy (known as a “lender title insurance policy”) which protects the lender in the event there is a defect in the title to the property. Most lenders require that such a policy be purchased by the borrower at closing. The borrower has the option of purchasing an “owner title insurance policy” to protect the borrower’s interest in the property in the event there is a defect in the title for an additional premium. However, an owner’s policy is not required by the lender.

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