How Mortgages Work

List of Closing Costs, Part III

Yes, there are more:

  • Prepaid interest -- Although your first payment won't be due for six to eight weeks, the interest starts accruing the day you close the sale. The lender calculates the interest due for that fraction of a month before your first official mortgage payment. It's a good strategy to plan your closing for the end of the month to reduce the amount of prepaid interest you'll owe.
  • Deed recording fees -- These fees, usually around $50, pay the county clerk to record the deed and mortgage and change the billing information for property taxes.
  • Title search fees -- A title search ensures that the person saying he or she owns the property is the legitimate owner. A title company closely examines public records such as deeds, records of death, court judgments, liens, contests over wills and other documents that could affect ownership rights. This is an important step in closing your loan because it assures that there are no outside claims against the property. The fees charged for title searches, usually between $300 and $600, are based on a percentage of the property cost.
  • Title insurance -- If the title company misses something during the title search, you'll be glad you have title insurance. Title insurance protects you from having to pay the mortgage on a property you no longer legally own. Lenders require title insurance to protect their investment, but you may also want to get your own policy. Title insurance has only a onetime fee that covers your property for the entire length of time you or your heirs own it (usually 0.2 to 0.5 percent of the loan amount for lender's title insurance, and 0.3 to 0.6 percent for owner's title insurance). It's also one of the least expensive types of insurance. If the previous owner of the property owned it for only a few years, you may be able to get title insurance at a "re-issue" rate, which is usually lower than the regular rate.
  • Closing Taxes -- Depending on the state you live in, you will have to pay anywhere from three to eight (or more) months' taxes at the closing, or place the money in an escrow account for later payments throughout the year. These include prorated school taxes, municipal taxes and any other required taxes. In some cases, you may be able to split these taxes with the seller based on when they are due. For example, you would only pay taxes for the months following the closing date up until the date the taxes had to be paid. The seller would have to pay for the months up until the closing date.

Now that you've finally closed the sale -- yes, you may actually have to pay for something else. Find out what on the next page.