You finally found the perfect new home, the seller eagerly accepted your offer, the loan is approved and you are ready to move in. But before the keys are in your pocket you have to get to the closing. A closing is where you pass ownership from one party to another. The seller signs the deed, you sign the mortgage papers and everyone signs the HUD. There is a lot of paperwork involved and can sometimes be very confusing.

As the Buyer, you will sign and initial and sign again until you think your fingers will fall off.And then you have to turn over a sizable bank check to cover the down payment and closing costs. Closing costs are the fees associated with the transaction, but what do they all mean. For many Buyers these fees just remain a mystery and they pay thousands of dollars for things they don’t understand.

It is easy to get familiar with these costs. Some relate to the mortgage and others are government related. Fees and tax stamps vary locally but here are some common fees and what they are for:

Loan Origination Fee- Typically covers the lender’s loan processing costs. This fee is often one to three percent of the total mortgage. Notice I said total mortgage not the total sale price of the house. Other fees associated with the creation of the loan can include Loan Document Preparation, Underwriting, Processing, Funding and Administration Fees. RESPA (Real Estate Settlement Practices Act) requires that lenders disclosed the potential costs of all these fees in advance and in writing.

Points - This is a one time charge if you have chosen a loan discount in the form of “points” to lower your interest rate. One point equals one percent.

Title Insurance - There are two types of title insurance - the lender’s policy and the owner’s policy. If you have a mortgage on the property you will have to buy the lender’s policy to insure the loan against title defects. The owner’s policy is optional. Personally I feel you are very foolish if you do not buy title insurance on all properties. They insure you against any defects in the title. A few hours of a title lawyer if there is some glitch on the deed is well worth the cost.

Transfer taxes and recording fees- The money you give to the State for the privilege of buying or selling a house. Transfer taxes are based on the purchase price of the house. In New Hampshire they are $15.00 per thousand. In Maine they are calculated by dividing the sales price by 500; round the answer up to the next highest whole number; then multiply the answer by $2.20. Transfer taxes are usually split between the Buyer and the Seller. But you can negotiate to have one of those parties pay them all. Recording fees are charged to record the deed at the courthouse.

Appraisal - Pays for the appraisal of the property. You may have already paid this fee outside of the closing at the beginning of your loan application process.

Credit Report- Covers the cost of the credit report that the lender requests to see if you are worthy of a loan. This may also be paid up front in the application process.

PMI Premium- PMI = Private Mortgage Insurance. When you buy a home with a low down payment, the lender usually requires you to pay a fee for mortgage insurance. This protects the lender in case you default on the loan and go into foreclosure. Once you achieve 20% equity in the home you can apply to eliminate this insurance. Or if you are putting 20% down this fee will not come into the equation.

Escrow Accounts- This is a fund where the lender holds money in order to pay the property taxes. The taxes can equal the number of months that have elapsed in the current tax cycle plus two months. This is a tricky calculation because some town collect in arrears and some towns collect in advance and some towns do half in arrears and half in advance. You can also have an escrow account for homeowner’s insurance. Typically you have to bring proof of one year’s insurance paid in advance to the closing.

Keep in mind that all of these fees can be negotitated as part of the original purchase and sales contract. In some instances that Seller might be willing to pick up some or all of these costs for the closing but remember that this has to be agreed to with the original terms of the offer. Talk to your real estate sales professional in your area to find out what you can expect to pay during the closing of your dream home. If you are looking for your dream home in New Hampshire of Maine, give the Real Estate Seacoast Team a call to find out where the best deals are! (603) 610-8511 or send us an email at saldrich@kw.com

(c) Shannon Aldrich, Keller Williams Coastal Realty Portsmouth NH