There are three basic categories of charges and fees in settlement or closing transactions:

• Charges for establishing and transferring ownership. These include title search, title insurance, related legal fees, and fees for conducting the settlement.

• Amounts paid to state and local governments. These include city, county and state transfer taxes, recordation fees, and prepaid property taxes.

• Costs of getting a mortgage. These include survey, appraisals, credit checks, loan documentation fees, notary charges, loan origination, commitment and processing fees, hazard insurance, interest prepayments, and lender's inspection fees.
 

Mortgage-Related Closing Costs

The costs of getting a mortgage may be imposed by your lender as early as when you apply for your loan. Mortgage-related closing costs include:

• Application Fee. Imposed by your lender, this charge covers the initial costs of processing your loan request and checking your credit report.

• Appraisal Fee. This fee pays for an independent appraisal of the home you want to purchase. The lender requires this opinion or estimate of the market value of the house for the loan.

• Survey. At a minimum, the lender will require an independent verification from a surveying firm that your lot has not been encroached upon by any structures since the last survey conducted on the property. Alternatively, the lender may insist upon a complete (and more costly) survey to ensure that the house and other structures legally are where you and the seller say they are.

• Loan Origination Fees and Discount Points. The origination fee is charged for the lender's work in evaluating and preparing your mortgage loan. Discount points are prepaid finance charges imposed by the lender at closing to increase the yield to the lender beyond the stated interest rate on the mortgage note. One point equals one percent of the loan amount. For example, one point on a $75,000 loan would be $750. In some cases - especially with refinances - the points can be financed by adding them to the loan amount.

• Mortgage Insurance. Buyers who make down payments less than 20 percent (and in some cases 30 percent) of the value of the house may be required by lenders, and by law in some states, to take out mortgage insurance. The policy covers the lender's risk in the event the buyer fails to make the loan payments. Premiums are typically paid annually from an escrow or reserve account, or in a lump sum at closing. A buyer, whose mortgage is insured by FHA or guaranteed by VA, will have to pay FHA mortgage insurance premiums or VA guarantee fees.

• Homeowner's & Hazard Insurance. A form or protection against physical damage to the house by fire, wind, vandalism, and other causes. Your lender will expect you to have a policy in effect at closing.

Miscellaneous Closing Costs

Depending upon the location and type of property, and extra services you or your lender request, you may also have to pay some of the following at closing:

• An assumption fee is charged when you are taking over or assuming an existing mortgage on the house. The size of the fee will depend on the lender, but it may range from several hundred dollars to 1 percent of the loan amount.

• Home inspection fees for an analysis of the structural condition of the property by an engineer or consultant, and for termite inspections.

• Adjustments for various types of expenses prorated between the seller and the purchaser. Some of the adjustments may involve large amounts. Local property taxes, annual condominium fees and other lump sum service charges, for instance, may be split between you and the seller to cover your respective periods of ownership for the calendar year or tax period.

Settlements are conducted by lending institutions, title insurance companies, escrow companies, real estate brokers, or attorneys. In most cases, whoever conducts the settlement is providing a service to the lender. You may be required to pay for related legal services provided to the lender. You can also retain you own attorney to represent you at all stages of
the transaction including settlement.

How Can You Anticipate How Much You Will Have To Pay In Closing Costs?

With such a long list of potential charges at settlement, it is important to know what to expect. To enable you to do that, Congress passed the Real Estate Settlement Procedures Act (RESPA). Your mortgage lender is required to supply you with a Good Faith Estimate of all your closing costs within three business days of your application for a loan, together with a special information booklet called Settlement Costs - A HUD Guide.

In addition, a statement of your actual costs should be given to you at or before settlement. Within the same three days, the lender is required, under the Truth in Lending Act, to provide you with a disclosure estimating the costs of the loan you have applied for, including your total finance charge and the Annual Percentage Rate (APR). The APR expresses the cost of your loan as a yearly rate.

This rate is likely to be higher than the stated interest rate on your mortgage because it takes into account discount points, mortgage insurance, and certain other fees that add to the cost of your loan. One rule of thumb for buyers is to figure that at least an additional 3 percent will be added to the price of your home through settlement expenses.

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Montana Real Estate Special Communities

Rocky Mountain Real Estate has its office in Downtown Whitefish, Montana. Whether you are a buyer or seller, we look forward to the privilege of representing you.