How to Account for Real Estate Closing Fees

Closing fees are added to the final price of the home.

The price you see on the "for sale" sign in front of a piece of property is only the tip of the iceberg when financing a home. Before a mortgage company approves your loan, it must examine the home for insect damage, appraise the property and perform many other inspections — all of which cost a fee. Before signing your mortgage loan, account for your real estate closing fees to avoid running out of money in the buying process.

Instructions

1. Ask your lender what they charge for loans. Most mortgage companies charge loan origination fees, which typically are a percentage of the total loan amount. The percentage depends on the lender. For example, if you borrow $150,000 for your mortgage, and the mortgage company charges a 0.1 percent fee, your loan costs $150.

2. Check with your lender regarding appraisal fees for your loan. Mortgage companies hire appraisers to inspect your real estate and determine its value. Lenders approve your loan only if they think your property is worth the amount you are asking. Because appraisers must physically inspect a property, and time is money, your mortgage lender will charge an appraisal fee. Ask about this fee so you can account for it.

3. Contact your mortgage lender and ask about their escrow requirements for loans. Escrow accounts are safeguards for mortgage lenders to prevent loan default. Part of your monthly mortgage payment goes into escrow, and if you fail to make a payment for a month, the lender will draw from the account. If the mortgage company requires part of that escrow account upfront, this adds to your closing costs.

4. Ask if there is an application and credit check fee for your real estate. To process your application — which includes everything from your Social Security number to previous employers — the lending company uses its time and resources, which cost money. Additionally, credit companies charge to process your credit check. To account for all of your closing fees, you need the cost for running your application and credit check.

5. Check with your mortgage company and ask for an estimate of your inspection fees. Your potential real estate must pass a number of inspections before the mortgage company approves the loan. For example, a termite inspector is called to examine the wood for insect damage before the loan is approved.

References

• Smart Money: Cut Your Closing Costs; 2010
• Buy Owner: Determining Real Estate Closing Costs
• Closing.com: What are Closing Costs?