CLOSING COSTS are fees that are earned before closing but are payable at or before closing and fees that are required to be paid at closing to complete the loan transaction. These fees are itemized and estimated for you on the “Good-Faith-Estimate” now known as the “Loan Estimate” which is provided within three business days of the filing of your application.
Closing costs are typically divided into two broad categories. First, there are the fees required by your lender and mortgage broker as a condition of closing your loan. These Fees may include an application fee, appraisal fee, credit reporting fee, interim interest until the end of the month, mortgage broker points and lender points (a point is one percent of the principal loan amount). Tax and insurance escrows would be discussed later. Second, there are Fees payable to third parties whose services are required by the lender as a condition of closing your loan. The most prominent of these Fees are related to the delivery of a title report and a policy of title insurance to the lender, to ensure its interest in the property securing the loan. In addition to collecting fees for title insurance premiums, necessary searches, and policy endorsements, the title company will collect from the borrower at closing, an amount sufficient to pay the mortgage recording tax (0.80% in New York State, 1.80% in the five boroughs of New York City, but isn’t applicable on co-ops), the fee to record the deed (in purchase transactions) the mortgage and any satisfaction, and an amount sufficient to pay any open taxes or assessments or any such charges that will become due within sixty days of closing.
Further third party fees include charges for hazard and flood insurance (if applicable), flood certification, private mortgage insurance (if applicable), termite inspection, well water and cesspool inspections (if applicable), legal fees payable to the lender’s settlement agent, and survey charges (if applicable).
If your loan provides for the lender to escrow funds for the payment of taxes and/or insurance, an amount necessary to fund the escrow account will be collected at closing, so that there will be sufficient funds available, when combined with the amounts collected as part of your monthly payments, to pay these charges as they become due.
Closing costs may be paid out of the loan proceeds or they may be paid separately by the borrower, usually by certified check. Certain loan programs allow the borrower to finance the closing costs by increasing the loan amount in an amount sufficient to pay these charges or by adjusting the interest rate.
The Loan estimate (Good-Faith-Estimate) will estimate each of the above-described charges that are applicable to your loan transaction, for you.