Closing Costs - What Are All Those Fees?

Buyers have lots of questions about buying a home and obtaining a mortgage.  Here we'll list the most common buyer closing costs, what they are for, and the average amount charged for these services in New Jersey.

Within three days of applying for the loan, your lender should give you closing disclosures so you will know what your APR (annual percentage rate) will be. The closing disclosures show you the closing costs that are included in the amount that makes up the APR. You should carefully assess each item for validity, and ask questions about items you do not understand.

We've also included the 'average' fees (according to BankRate) that are charged by lenders to buyers purchasing a $200,000 home in New Jersey:

Fees charged by the lender

  • Document preparation - $60 - The charge for document preparation may be separate or included under the application fee or attorney fee. Just check to make sure the fee isn't imposed under more than one title.
  • Broker, originator or lender fee - $1,124 - Most mortgage brokers and lenders have some sort of loan origination fee. It may be included in the APR or a separate title. The amount often varies based on how much work the lender/broker did to secure your financing. For example, those with exemplary credit may have a lower origination fee because the lender didn't have to do as much work to secure their loan. On the other hand, a broker/lender trying to secure financing for someone with questionable or low credit will usually work much harder to secure a loan.
  • Discount Points - You will pay for points (a fee equal to one percent of the loan amount) upfront. You're actually prepaying interest on the loan, thereby getting a lower interest rate in return. One point on a $200,000 mortgage would cost you $2,000 dollars. Points may be a prudent route if the mortgage will be paid over a long period of time.  Points are not as common when the interest rate is low.
  • Escrow Account - Think of this fee as a forced savings account of sorts. The account serves as a middleman between you and the county for property taxes, you and the homeowner's insurance company for premiums, and so forth. The money, which is a portion of your total mortgage payment, is held by the lender in the escrow account until the payment is due.  It is then paid by the lender on your behalf. This is a way that the bank can ensure that bills related to the mortgage are paid.
  • Pre-Paid Interest - The amount of interest incurred on your loan during the gap between the date of closing and when the mortgage loan payment is due at the first of the month.

Third-party Fees

  • Mortgage Insurance - Lenders may require anyone not putting at least 20% down to purchase mortgage insurance. The fee will usually be paid in full at closing or annually from an escrow account.
  • Title Insurance - This must be purchased to cover you and the lender. It ensures that the property title is free and clear of any claims or liens so that someone can't come along and make a legal claim of ownership on the property after you've taken a mortgage out on it. Occasionally, title insurance is covered by the seller, but more often than not the purchaser is responsible for it. However, the policy rate may be less if the previous owner only owned the property a short time and the insurer is willing to reissue the policy to you.
  • Appraisal - $414 - The lender hires an appraiser to render an opinion about the real value of the home, independent of its listing or negotiated price. That value is then compared against what the borrower has agreed to pay.
  • Credit report - $21 - A fee charged to order a history of your financial life. It includes details about your behavior as a bill payer, the amount of debt you owe, your available credit and any inquiries that companies make to obtain this information, such as your mortgage lender. A good credit report means better loan terms.
  • Tax service - $76 - A fee to cover the cost of hiring a company to verify the amount of real estate taxes due and making sure they're paid.
  • Flood certification - $10 - A fee that covers the assessment of whether a property is in a flood zone. If it is, the new homeowner must buy a flood insurance policy.
  • Attorney, closing or settlement - $724 - The amount paid to an attorney for witnessing the mortgage loan transaction.
  • Inspections (pest, etc.) - $125 - A fee paid to a certified person who searches the dwelling for termites and other destructive creatures.
  • Postal/courier - $100 - This fee covers what it costs a lender to send paperwork to the other entities involved in the mortgage transaction.
  • Survey - $813 - A fee charged to hire a licensed surveyor to get an accurate measurement of the property and its boundaries.

You will likely not have all of these expenses when you close on your property, but these are some of the most common closing costs and what they cover.

You will have the opportunity to review and discuss all costs related to your mortgage up front so there are no surprises at the closing table.