Closing, or settlement, costs are fees you pay when you actually get your loan from your financial institution. This happens right before you’re supposed to move into your new home. The mortgage is issued and you get keys to your home. A title search is also done to prove that no one owns the property. Your title insurance is issued, as well as a survey, termite certificate, and homeowner’s insurance.

Closing Costs: Terms You Should Know

Escrow Fees
Fees, usually a few hundred dollars, to cover the cost of handling documents and transferring funds.

Homeowner’s Insurance
Insurance coverage to protect your home. The cost depends on the value of your home and your belongings.

Inspection Fees
Fees, usually between $250 and $550, paid to home inspectors.

Legal Fees
Some states require the use of a lawyer when buying a home. Fees vary.

Loan Origination Fees/Points
Fees some lenders charge for making the loan. The fees are typically between 1% and 5% of the loan amount, but may be more. In exchange for this cost, you get a lower interest rate. Generally it only makes sense to pay “points” when you plan to stay in your home for a longer period of time (at least three years).

Prepaid Loan Interest
This payment covers the cost of interest between the date your loan is given to you and the date you take ownership of your home. This usually covers 1-3 business days, but could be longer.

Private Mortgage Insurance (PMI)
PMI is required for borrowers with down payments of less than 20%. This insurance protects the lender if the borrower doesn’t pay the mortgage. PMI is not a permanent cost. When you’ve paid at least 20% of your mortgage or your property has increased in value so your mortgage is less than 80% of the property value, you don’t have to pay PMI any more. PMI can cost you hundreds or thousands of dollars each year.

Property Taxes
If the seller has paid property taxes in advance, you must reimburse them. Be sure to ask about this – you might be able to get the taxes included in your mortgage.

Recording/Courier/Notary Fees
These fees for related to loan paperwork, including getting everything signed and getting your deed recorded with the local government.