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When you finance a home, you'll encounter various fees beyond your down payment and monthly mortgage payment. These costs represent the price of doing business in real estate—compensating the professionals, services, and government entities that facilitate your transaction and ensure everything is legally sound and properly recorded.
Key Takeaways:
· Closing costs fall into three main categories: lender fees, third-party/vendor fees, and prepaid items
· Most buyers should budget around 2% of the purchase price for total closing costs
· In California, the majority of fees come from title, escrow, and prepaid expenses rather than lender charges
· Your Loan Estimate (received within 3 days of applying) itemizes all anticipated costs
What Are Mortgage Fees?
Mortgage fees fall into three main categories: lender fees, third-party/vendor fees, and prepaid items. Understanding each category helps you identify which costs are negotiable and where your money actually goes.
Lender Fees are charges from your mortgage company for processing and underwriting your loan.
Third-Party/Vendor Fees are costs for services required to complete your transaction, such as appraisals, title insurance, escrow services, and government recording fees.
Prepaid Items & Impounds are upfront payments for expenses that will recur throughout homeownership, including property taxes, homeowners insurance, and prepaid interest.
| Fee | What It Covers | Common? | Notes |
|---|---|---|---|
| Points | Optional prepaid interest to buy down your interest rate | ||
| Broker Comp | Compensation paid to mortgage broker (if applicable) | ||
| Underwriting | Fee for evaluating your financial documents and approving the loan |
| Fee | What It Covers | Common? | Notes |
|---|---|---|---|
| Appraisal & Reports | |||
| Appraisal | Independent assessment of the property's market value | ||
| Credit Report | Cost to pull your credit from the three major bureaus | ||
| Processing Fee | Administrative costs for gathering and organizing loan documents | ||
| Tax Service | Monitoring service to ensure property taxes are paid during the loan term | ||
| Flood Cert | Verification of whether the property is in a FEMA flood zone | ||
| Title & Escrow | |||
| Escrow | Neutral third party that holds funds and documents until closing conditions are met | ||
| Title | Title company's fee for researching ownership history and issuing title insurance | ||
| Mobile Notary | Notary who travels to your location for document signing | ||
| Loan Tie-In | Fee to coordinate the loan payoff with the title company | ||
| Subescrow | Additional escrow services for complex transactions | ||
| Endorsement | Specific title insurance endorsements for additional coverage | ||
| Courier/Wire/Email | Document delivery and wire transfer fees | ||
| Messenger Fee | Physical document transportation between parties | ||
| Doc Prep | Preparation of closing documents by title/escrow | ||
| Recording Service Fee | Title company's fee to facilitate government recording | ||
| Survey Fee | Professional survey to verify property boundaries | ||
| Other | Miscellaneous title/escrow charges | ||
| Government Fees | |||
| Grant Deed | County fee to record the deed transferring ownership to you | ||
| Trust Deed | County fee to record the mortgage/deed of trust | ||
| SB2 Affordable Housing | California state fee (SB 2 Building Homes and Jobs Act) to fund affordable housing | ||
| Fee | What It Covers | Common? | Notes |
|---|---|---|---|
| Prepaids (Section F) | |||
| Days Interest | Per-diem interest from closing date through month-end | ||
| HOI Policy (owed upfront) | First year's homeowners insurance premium | ||
| Current Tax Installment (owed upfront) | Property taxes owed at closing if not yet paid by seller | ||
| Mortgage Insurance (owed upfront) | Upfront mortgage insurance premium, if applicable | ||
| Seller-Paid Tax Prorata | Reimbursement to seller for prepaid taxes beyond closing | ||
| Impound/Escrow Account Funding (Section G) | |||
| HOI Cushion | Reserves deposited into your escrow account for future insurance payments (typically 3 months) | ||
| Tax Cushion | Reserves deposited into your escrow account for future property tax payments (typically 3-6 months) | ||
| Mortgage Insurance | Reserves for ongoing mortgage insurance premiums | ||
| Aggregate Adjustment | Credit or debit to keep your escrow account within federal limits (RESPA) | ||
| Other (Section H) | |||
| HOA Dues | Homeowners association fees or transfer fees | ||
| Water Transfer | Utility transfer or final billing charges | ||