Escrow and Closing costs

Closing costs are the expenses over and above the property's price that buyers and sellers incur to complete a real estate transaction. These costs may include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed recording fees, and credit report charges.

How can I save on closing costs?
  • Negotiate with the seller to pay all or part of the closing costs. The lender must agree to this as well as the seller
  • Get a no-point loan. The trade-off is a higher interest rate on the loan. Buyers who are short on cash and can qualify for a higher interest rate may find a no-point loan will significantly cut their closing costs
  • Get a no-fee loan. Usually, these fees are wrapped into a higher interest rate though it will save you on the amount of cash you need upfront
  • Get seller financing. This kind of arrangement usually does not entail traditional loan fees or charges
  • Rent the property in which you are interested with an option to buy. That will give you more time to save for the upfront cash needed for the actual purchase
  • Shop around for the best loan deal. Each direct lender and each mortgage brokerage has their own fee structure. Call around before submitting your final loan application.

Closing Costs

  • Who pays the closing costs?

    Who pays the closing costs?

    Closing costs are either paid by the home seller or home buyer. It often depends on local custom and what the buyer or seller negotiates.

  • What are closing costs?

    What are closing costs?

    Closing costs are the fees for services, taxes or special interest charges that surround the purchase of a home. They include upfront loan points, title insurance, escrow or closing day charges, document fees, prepaid interest and property taxes. Unless, these charges are rolled into the loan, they must be paid when the home is closed or at close of escrow.

  • Where do I get information about closing costs?

    Where do I get information about closing costs?

    For more on closing costs, ask for the "Consumers Guide to Mortgage Settlement Costs," Federal Reserve Bank of San Francisco, Public Information Department, P.O. Box 7702, San Francisco, CA 94120 or call (415) 974-2163.

  • Why do I need a title report?

    Why do I need a title report?

    As much as you as a buyer may want to believe that the home you have found is perfect, a clear title report ensures there are no liens placed against the prior owners or any documents that will restrict your use of the property. A preliminary title report provides you with an opportunity to review any impediment that would prevent clear title from passing to you. When reading a preliminary report, it is important to check the extent of your ownership rights or interest. The most common form of interest is "Fee Simple" or "Fee," which is the highest type of interest an owner can have in land. Liens, restrictions and interests of others excluded from title coverage will be listed numerically as exceptions in the report. You also may have to consider interests of any third parties, such as easements granted by prior owners that limit use of the property. Some buyers attempt to clear these unwanted items prior to purchase. A list of standard exceptions and exclusions not covered by the title insurance policy may be attached. This section includes items the buyer may want to investigate further, such as any laws governing building and zoning.

Below, are some of the most common closing costs associated with the purchase or sale of real estate:

LOAN ORIGINATION FEE – This fee covers the lender's administrative costs in processing the loan. A one-time fee often expressed as a percentage of the loan.


LOAN DISCOUNT – Often called "points", a loan discount is a one-time charge used to adjust the yield on the loan to what market conditions demand. One point is equal to 1% of the loan amount.


APPRAISAL FEE – This is a one-time fee that pays for an appraisal - a statement of property value for the lender. An independent fee appraiser makes the appraisal. The average cost for a single-family home appraisal is $400 - 750.


CREDIT REPORT FEE – This one-time fee covers the cost of the credit report that is run by an independent credit-reporting agency. Usually, the cost for credit reporting is $30 - $60 (depending if an individual report or joint report).


TITLE INSURANCE FEES – There are two title policies. 1) A Lender's title policy, which protects the lender against loss due to defects on title. 2) A Buyer's title policy, which protects you, the buyer - Both are one-time fees.


MISCELLANEOUS TITLE CHARGES – The title company may charge fees for a title search, title examination, document preparation, notary fees, recording fees, and a settlement or closing fee - These are one-time fees.


DOCUMENTATION PREPARATION FEE – There may be a separate, one-time fee that covers preparation of the final legal papers, including the note and deed of trust.


PREPAID INTEREST – Depending on the time of month your loan closes, this charge may vary from a full month's interest to just a few days. If your loan closes at the beginning of the month, you will probably have to pay the maximum amount. If your loan closes at the end of the month, you will only have to pay a few days interest.


PMI PREMIUM – In most cases, if your down payment is less than 20% of the purchase price, you will be required to pay an up-front fee for mortgage insurance (which protects the lender against loss due to foreclosure). You may also be required to put a certain amount for PMI into a special reserve account (an impound account) held by the lender.


TAXES AND HAZARD INSURANCE – Depending on the month that you close, you may be required to reimburse the seller for property taxes. You will also need to pay an entire year's hazard insurance premium up front. In addition, you may be required to put a certain amount for taxes and insurance into a special reserve (an impound account) account held by the lender.