Closing costs and settlement costs are just different names for the same thing. When you purchase a home there are a number of fees that are collected at a settlement or closing before you take possession of your new home. At the settlement on your new home, you'll finalize your home purchase by signing all the papers which make the home officially yours. You'll have to pay closing costs which are approximately 4% of the sales price. The seller may offset these costs. In Virginia these costs include:
Loan originated fees (usually 1% of the loan amount) (not charged if you assume an existing loan; however, there will be a loan assumption fee = $150-$500 or higher).
Discount points (depends on your interest rate) (not charged if you assume an existing loan);
Settlement attorney's fees document preparation, title search, title insurance binder, and courier fee to/from lender of approximately $400. This fee is not charged to Casey’s buyers. The people who do title searches have an extremely important job. They must ensure that the sellers really own the property being sold and that all liens against the property are being paid off as a result of the sale. The preliminary title report will also show any easements that run with the property. The Title Company will go back many years, examining what is called the "chain of title". If you learn that the property you are buying has title problems, don't panic. Most of them are resolved easily and in plenty of time to avoid delays in the closing.
Lender fees for underwriting, tax service fee, document preparation fee (approximately $275 - but higher for ARMs $450);
Title Insurance - the lender requires that you only cover the loan amount; however, for a small one-time fee you should also cover yourself up to the sales price. Although a title search has been conducted to prove the property is free and clean of all encumbrances, sometimes a human error occurs. And it may not be during your title search -- it may have occurred many title searches before that, but it will still affect your title.
At present in Virginia, title insurance is $2.90 (for lender only) per $1,000 of loan amount up to $100,000 and $2.40 per $1,000 above $100,000 plus $50. For lender and owner policies, it is $3.90 per $1,000 up to $100,000 and $3.40 above $100,000 plus $50.
Recording Deed: $2.00 per $1,000 of sales price plus $14;
Recording 1st Trust: $2.00 per $1,000 of loan amount plus $13 (for fixed rates) and $15 (for ARMs). Over 4 pages add $1 per additional page;
Recording 2nd Trust: (If there is one) $2.00 per $1,000 of loan amount plus $10.
Survey: $200-$300;
Appraisal: $300 (sometimes paid at the time of loan application);
Credit Check: $50-$60 (sometimes paid at the time of loan application or before);
Upfront Private Mortgage Insurance or Mortgage Insurance Premiums or VA Funding Fee (see Mortgage Insurance); this should be avoided if possible talk to me about this
Home Inspections: Various fees charged for various inspections -- all payable at the time of the inspection. See my information on inspections.
Hazard Insurance: Your lender only requires you to provide fire and hazard insurance on your new home; however, you probably want a full homeowners' policy to cover your contents and personal liability. You pay for a full year policy and provide your lender with a paid receipt and the declaration/endorsement/policy itself. You should purchase this at least two weeks before settlement;
Interest: On most mortgages, interest is paid in arrears while principal is paid upfront.
For instance:
When making the September payment, you are paying the interest for August and the principal for September. Normally a lender allows you to skip the first month's payment after settlement (lenders vary using 45-60 days to first payment). Therefore, if you settled on September 15, your first payment would not be made until November 1 (which would pay the interest for October). What happened to the interest for September 15-30? You have to pay it at the closing table! To figure this amount, multiply your interest rate times your loan amount and divide by 365 (some lenders use 360) to give you a daily rate. Always include the day you're settling -- you get to pay for that day too.
Tax Escrow: Lenders usually escrow at least 3 months of tax payments. This money is yours and is held for you to allow the lender to pay your real property taxes when they come due.
Hazard Insurance Escrow: Lenders usually escrow 2 months of hazard insurance payments. Again, when the policy comes due the next year, the lender will pay for it out of this account.
Mortgage Insurance Escrow: Again, lenders usually escrow 2 months of mortgage insurance premiums so they have the money to renew it the next year.
Mortgage Insurance on FHA Loans:
The upfront fee is 2.25% which can be financed with your mortgage (even if it exceeds the cap) and there is a monthly renewal rate of .0050% (.0050 x loan amount divided by 12) added to your housing payment.
There is no upfront fee if you're buying a condo, but the monthly fee still applies. At settlement, 2 months of the monthly renewal fee will be added to your costs as an escrow amount.
FHA will probably not remove the MIP no matter how much equity you have in your property-some say it runs out in the 22nd year of your loan. Also, if you sell within the first few years, you might get a refund- don't bank on it though.
Conventional Loans
The rates vary and you should check with your lender and your Real Estate Agent about upfront and monthly rates. It is a good idea to go over these rates, and the tax implications thoroughly with your Advisers.
I know all the above put you in a panic, but believe me, Virginia is one of the lowest states when it comes to closing costs and it is the 4th lowest state in the U.S. for real property taxes. When you make an offer (write a contract), your real estate agent will give you an estimate of your closing costs and when you apply for your loan, your Real Estate Agent will go over the estimated closing costs, before you settle and at settlement so you won't have any surprises.
