The Financial Summary Of A Sale – The HUD-1 Settlement Statement
A new survey by Bankrate.com found that closing costs have are on the rise across the country, with mortgage related fees increasing alone rising 5.7% since last year. In 2012 title insurance rates in Pennsylvania were increased and Delaware County recently announced that the cost to record real estate documents such as mortgages and deeds have increased.
So as a buyer what can you expect to see on the Settlement Statement and pay for at your settlement?
Let’s review the typical closing costs from a buyer’s perspective with explanations and estimates of the associated charges that a buyer will see on the HUD – 1 Settlement Statement, also referred to as the HUD – 1, which is the standard document that itemizes the funds involved in a real estate transaction.
Items Payable In Connection With Loan
When a buyer obtains mortgage financing for a home the cost associated with that loan are itemized in this section. The common items found here are:
Underwriting Or Origination Fee : this is a category of charges that are levied by the lender as fees connected to the processing of the loan – Up to $795
Commitment Fee – A borrower pays this fee when he or she accepts the lender’s commitment of the funds. – $275 – $300
Application Fee -Fee paid to a mortgage broker, banker, or lending institution when applying for a mortgage loan. The application fee includes the charges for soliciting, processing, placing, and negotiating the mortgage. This fee can vary greatly between lenders. It is one fee that you may be able to negotiate with the lender and one that you can “shop” between different lenders. – $0 – $750
Wire Transfer Fee – Charge to electronically transfer funds to the Title Company – $25 – $40
Overnight Delivery Fee – Fee paid for the overnight delivery of mortgage papers to the closing officer – $20 – $25
Points – a charge which is equal to 1% of the loan amount e.g. 1 point on a $100,000 loan is equal to $1,000, which can be incurred as an upfront payment when the buyer is “buying down” or lowering a stated interest rate, or for participation in custom lender programs. Points are not always paid when obtaining a mortgage but can also be incurred by a buyer who has less than perfect credit, and must pay the lender a premium in order to obtain the loan. Points may also be levied for loan amounts that are under $100,000
Appraisal Fee: the fee charged to the borrower for ordering and processing of the property appraisal. Appraisals are required when buying a property that involves mortgage financing – $350 – $500
Credit Report: the fee charged by the lender to run a Credit Report on the borrower – $12 – $25
Tax Service Fee: when a buyer is putting less than 20% down on a property the lender will require that real estate taxes be held in escrow, in a separate account to pay future tax bills. This fee is for the establishment of that account – $60 – $75
Flood Certification: all properties, whether or not they are close to any body of water, must have a Flood Certification. This is to ensure that the home being purchased does not require flood insurance – $13 – $25
Upfront Mortgage Insurance Premium: If you are financing your home with a FHA mortgage you will be required to make an upfront mortgage insurance payment equal to 1.75% of your loan amount.
Items Required By Lender To Be Paid In Advance
Daily Interest Charges: the per diem interest charge for the mortgage incurred from the day of settlement until the end of the month.
Homeowners Insurance: A lender will require that a paid in full Homeowners Policy be in force at the time of settlement. Most buyers are required the insurance in full prior to closing, but it can sometimes be an option to pay the insurance bill at closing
Reserves Deposited With Lender
These are payments into the buyer’s escrow account for future obligations. The lender will set the amount of each category that will be used to pay future tax bills and homeowner’s insurance.
Homeowners Insurance: typically 3 months of the annual cost of the Homeowners Insurance
Property Taxes: 3 to 5 months of the annual municipal taxes
County Taxes: 3 to 5 months of the annual Delaware County Tax bill
School Taxes: 3 to 5 months of the annual school tax bill
For estimation purposes assume that you will need to cover a full year of tax payments for all 3 taxes at the settlement table.
Mortgage Insurance: when the borrower is putting less than 20% down there will be an escrow amount withheld for several months of Private Mortgage Insurance (PMI)
Homeowner Or Condominium Association Fees: if the property being purchased is part of a homeowners or condominium association an escrow amount equal to several months of association fees will be collected
Aggregate Adjustment: By law there are limits to the amount that can be placed into escrow at the settlement table on the buyer’s behalf. This adjustment, if applicable, reduces the escrow withholding to the prescribed limits
Title Charges
Title insurance is protection against loss due to problems of “defects” in the title to a property. Title Insurance is required when purchasing a property involving mortgage financing. Title insurance rates are regulated and uniform within Pennsylvania, and based upon the purchase price of the home. Title insurance is not required when purchasing a home for cash, but strongly recommended.
Title Service And Lender’s Title Insurance: the cost of the Title Insurance for the property – i.e a property with a $300,000 purchase price would have an Title Insurance charge of $1900
Notary Fees: the fee paid to the Notary, the Closing Officer, who conducts the closing – $50 – $75
Closing Services Letter: the charge for the letter to the underwriters stating that the Title Company conducting the closing is in good standing, and that the settlement clerk will follow all the instructions contained in the lender’s mortgage package – $50 – $75
Government Recording And Transfer Charges
Government Recording Charges: the mortgage and the deed, as well as other documents such as a Power Of Attorney, condominium association documents associated with the closing, must be recorded at the County Courthouse. Each county establishes a base fee for recording these documents. In Delaware County the base amount for recording a 4 page mortgage is $94.50. The recording of a standard 4 page deed costs an additional $96.50. Additional pages of a mortgage document are recorded at the cost of $4.00 per page. FHA mortgages are 12 pages in length, and Conventional mortgages are 18 pages in length – $250 – $350
Transfer Taxes: buyer and seller must each pay a 1% transfer tax of which 0.5% is remitted to the State of Pennsylvania, and the other 0.5% is paid to the local municipality, so for a $300,000 home the transfer tax is $3,000
Additional Settlement Charges
Conveyancing Fee: the brokerage charge for the processing or conveyancing of the transaction – $200 – $500
Adjustments For Items Paid By Or In Behalf Of Borrower
These items cover taxes that have been already paid by the seller that are being reimbursed. On the day of closing there will always be credits to the seller for tax payments that the seller has already paid. The buyer assumes the tax payments for the day after settlement forward. Municipal and Delaware County taxes operate on a calendar year basis – 01/01 to 12/31, and school taxes operate on a fiscal calendar that runs from 07/1 to 06/30 of the next year. Tax reimbursement are pro rated depending on the day of the settlement.
City/Town Taxes – day after settlement to end of calendar year
County Taxes – day after settlement to end of calendar year
School Taxes – day after settlement to the next June 30th
As a buyer you can expect closing costs of 5% of the purchase price of the home. Remember that these closing costs are in addition to the down payment that you have made. To offset closing costs it is not uncommon to ask the seller to provide a Seller Assist in order to reduce this amount.
Wallingford PA Real Estate – Wallingford, PA 19086
