What are Closing Costs?
It is common to hear the term “closing costs,” but what exactly are they? Closing costs are actually one of TWO parts that make up your settlement charges. Settlement charges consist of both your closing costs and prepaid items and are collected at closing.
Closing costs are comprised of lender and third party charges. Some of these charges include, attorney and appraisal fees, title insurance and title search, pest inspection, and county recording fees, among others. Many mortgage companies also charge a loan origination fee, which is a charge for processing your loan’s paperwork. At Arbor Financial, it is our policy to not charge this fee whenever possible, affording you the potential to save thousands of dollars in closing costs.
Prepaid Items are real estate taxes and insurances that are paid by the borrower and held in an escrow account by the lender. These are known as “pre-paid items” because they are payments made in advance of the monies being due. Prepaid items are not considered closing costs because they would have been paid whether you received a new home loan or not and are unrelated to the process of receiving a mortgage. Many loan programs and lenders will allow you to pay your own taxes and insurances without having an escrow account
While closing costs will vary from lender to lender, pre-paid items will be the same, no matter which lender you chose. If you should find yourself confused whether a certain charge is a closing cost or a prepaid item, just ask yourself: “Is this a real estate tax or insurance?” If so, then it is a prepaid item. If not, then it is a closing cost.