Settlement costs

There are so many different charges involved in buying a home, it is important to know what to expect at the loan settlement. You will receive a Good Faith Estimate (GFE) of your settlement costs and a Truth In Lending statement at or within three business days of your loan application. Review the charges to avoid any surprises when you sit down to close your mortgage loan.

There are three basic categories of settlement costs:

• Fees to get a mortgage. This includes lender fees and points, as well as a host of other charges involved in obtaining and processing your loan. Points are an upfront charge expressed as a percent of the loan amount (e.g., 1 point is 1 percent of the loan).

Specific lender fees can include:

• Loan Origination Fee. This is a charge for providing your loan at a certain interest rate.
• Application Fee This charge covers the initial costs of processing your loan application.
• Survey This fee goes to a surveying firm who will verify that the property you are buying has not been encroached upon by any structures not included with the property like a neighbors shed or fence and to ensure that the home and other structures and legally where the seller says they are.
• Mortgage Insurance A lender may require this type of insurance for buyers who make a down payment of less than 20 percent of the value of the house. The policy covers the lender's risk in the event the buyer fails to make the loan payments. Premiums are typically paid with your monthly payment. A second mortgage can be used to eliminate PMI and may improve your tax deductions.
• Homeowner's Insurance OR hazard iinsurance protects the property owner against loss caused by fire, weather, vandalism, etc., depending on the terms of the policy. The policy may also include coverage such as personal liability and theft away from home. Your lender will expect you to have a policy in effect by closing.
• Fees to establish and transfer ownership of the property. You want to know that the seller owns the property you want to buy and has the full right to sell the property to you. This is where a title search and title insurance fees come into play. A title agent will verify that the seller is indeed the owner of the property and issue a title insurance policy to protect you and the lender against any errors that could have occurred in the searching process. The cost of the policy is usually based on the loan amount and the cost is regulated by the state government, so the cost of the policy should be the same regardless of the company issuing the policy. There may also be attorney, escrow, courier fees and other charges involved in the settlement process.
• Fees to state and local governments. These fees include transfer, recording and property taxes collected by local and state governments. Your taxes are based on the assessed value of the home and usually pay for community services such as schools, public works, and other costs of local government. Taxes can often be included as a part of your monthly mortgage payment.