You’ve found your dream home, the seller has accepted your offer, your loan has been approved and you’re eager to move into your new home. But before you get the key, there’s one more step—the closing.

Also called the settlement, the closing is the process of passing ownership of property from seller to buyer. And it can be bewildering. As a buyer, you will sign what seems like endless piles of documents and will have to present a sizeable check for the down payment and various closing costs. It’s the fees associated with the closing that many times remains a mystery to many buyers who may simply hand over thousands of dollars without really knowing what they are paying for.

As a responsible buyer, you should be familiar with these costs that are both mortgage-related and government imposed.  Although many of the fees may vary by locality, here are some common fees:

·                    Appraisal Fee: This fee pays for the appraisal of the property. You may already have paid this fee at the beginning of your loan application process.

·                    Credit Report Fee: This fee covers the cost of the credit report requested by the lender. This too may already have been paid when you applied for your loan.

·                    Loan Origination Fee: This fee covers the lender’s loan-processing costs. The fee is typically one percent of the total mortgage.

·                    Loan Discount: You will pay this one-time charge if you have chosen to pay points to lower your interest rate. Each point you purchase equals one percent of the total loan.

·                    Title Insurance Fees: These fees generally include costs for the title search, title examination, title insurance, document preparation and other miscellaneous title fees.

·                    PMI Premium: If you buy a home with a low down payment, a lender usually requires that you pay a fee for mortgage insurance. This fee protects the lender against loss due to foreclosure. Once a new owner has 20 percent equity in their home, however, he or she can normally apply to eliminate this insurance.

·                    Prepaid Interest Fee: This fee covers the interest payment from the date you purchases the home to the date of your first mortgage payment. Generally, if you buy a home early in the month, the prepaid interest fee will be substantially higher than if you buy it towards the end of the month.

·                    Escrow Accounts: In locations where escrow accounts are common, a mortgage lender will usually start an account that holds funds for future annual property taxes and home insurance. At least one year advance plus two months worth of homeowner’s insurance premium will be collected. In addition, taxes equal approximately to two months in excess of the number of months that have elapsed in the year are paid at closing. (If 6 months have passed, 8 months of taxes will be collected.)

·                    Recording Fees and transfer taxes: This expense is charged by most states for recording the purchase documents and transferring ownership of the property.

Make sure you consult a real estate professional in your area to find out which fees—and how much—you will be expected to pay during the closing of you prospective home. Keep in mind that you can negotiate these costs with the seller during the offering stage. In some instances, the seller might even agree to pay all of the settlement costs.

            Title companies provide title insurance services to buyers, sellers, lenders and developers, essentially anyone who has an interest in real estate. Services vary throughout the country, depending on local practices and laws. In many states, title companies handle escrow as well as perform and insure title searches. A title search involves searching public records to ascertain if the seller has the legal right to sell the property. In other states, attorneys conduct title searches.

Title companies conduct a chain of title, which is a review of the owner history of the property, checking for who purchased the property, who sold it, and when. They perform judgment searches to determine whether there are any general liens against the property, as well as tax searches to verify the present status of taxes.

Some title companies conduct on-site inspections to verify lot size, the location of improvements, and evidence of unrecorded easements.

They issue a “Commitment of Title Insurance” to lenders after completion of the title search and they receive instructions and documents for the closing. Title companies also prepare a final Settlement Statement.

If it acts as the escrow holder, the title company receives a buyer’s earnest money, which is deposited in an escrow account until the closing, or final settlement.

As a neutral third party agent of the principals—buyer, seller, lender, and borrower—the title company helps with the transfer of ownership by ensuring that the terms of the transaction are completed. This includes safeguarding all funds (including the buyer’s deposit) and documents. Once all the details have been settled, the escrow holder disburses the funds and documents to the appropriate parties.

Another important role of the title company is to issue title insurance. Although a title search is conducted, it’s nearly impossible to guarantee a title is clear of hidden defects, such as mistakes in interpretation of wills and other legal documents, impersonation of the real owner, forgery, missing heirs, falsification of records and confusion stemming from similar names. Title insurance guarantees the title as reported.

Should hidden defects surface at any time challenging an owner’s rights, the title company will defend the title, in court, if necessary, and cover the owner’s losses up to the full value of the policy.

            Indeed, a title company can be crucial to the process of buying a home, so select a company that’s known for service. If you need a recommendation, talk to your real estate professional.