Mortgage Closing

What happens at a mortgage closing?

At closing, ownership of the newly purchased home is officially transferred from the seller to you. Present parties may be you, the seller, real estate agent, representatives from the title or escrow firm, clerks, secretaries, attorneys and other staff. It is possible to have an attorney act on your behalf if you cannot attend.

Closing can take as little as an hour or it can take several hours. Much of the paperwork involved in closing a loan is done by attorneys and real estate professionals, but requires payment from you. The costs associated with mortgage closing are detailed in the next section.

Closing Costs

Closing costs cover lender, third party and government fees as well as prepaid costs and can total 2% to 6% of the loan amount. These fees need to be paid by or on loan closing date, hence their name, but can sometimes be rolled into the principal balance or paid by the home seller (ask your lender). All of these costs are disclosed in your Good Faith Estimate (GFE), which you should have received from your lender after submitting your application.

Lender Fees

Application Fee

A lender fee for document preparation which may or may not include a deposit for credit report and appraisal fees. Some lenders require that application fees are paid at the time the mortgage application is submitted.

Origination Fee/Point

A lender fee for processing a borrower's mortgage application. Origination fees may be flat, a portion of the loan, or not charged at all.

Underwriting Fee

A lender fee that covers mortgage underwriting services, or the thorough inspection of a borrower's mortgage application details. Some lenders lump an underwriting fee with their origination fee.

Flood Certification Fee

A lender fee for verifying whether or not the property is in a flood zone.

Discount Points

An optional cost for reducing the mortgage interest rate, i.e. buying the rate down. Points are equal to 1% of the loan amount, and may be tax deductible.

Third Party Fees

Attorney Fees

Attorney fees cover services associated with home purchase and documentation. The lender, buyer and seller may choose or waive their right to an attorney during a real estate transaction.

Document Preparation Fees

Lenders may hire third parties to handle the great deal of paperwork that needs to be organized for a mortgage closing, for which the borrower will be charged.

Title Insurance Fees

Covers any legal fees associated with the investigation of a property's chain of title, as well as any losses.

Appraisal Fees

Covers the service costs of the licensed home appraiser.

Credit Reporting Fee

Covers the costs associated with the credit reporting agency. Some lenders require credit reporting fees to be paid with the application fee up front.

Inspection Fees

Covers the costs associated with the inspection agency's services. Several inspections may be required: termite, structural, radon, water quality and others. Some inspection fees are due at the time of inspection.

Survey

Covers the costs of the surveyor's services. Some lenders require that a property is surveyed to look out for encroachments as well as acquire exact lot size and dimensions. Some survey fees are due at the time of service.

Prepaid Costs

Prepaid Interest

Mortgage payments are paid in arrears: interest is paid in the month after the borrowed funds are used (e.g. April's interest payment pays March's interest). Since it isn't practical for you to make a partial monthly payment days after the home purchase and the first mortgage payment is due the second month after closing, the lender will charge an interest payment at closing.

Homeowner or Hazard Insurance

Insures the homeowner against the event of damage to the property. Borrowers must pay a year's premium at closing, and may have to pay extra funds as cushion if the insurance was escrowed.

Property Taxes

Property taxes will be paid by the home seller up until closing, and a seller's credit will be applied to the home the month the sale is complete. Buyers who escrow their taxes will need to pay into the account for cushion.

Government Fees

Recording Fees

Required by the local government for entering a record of change of ownership. Recording fees may be paid by the buyer or the seller.