Settlement Charges - Closing Costs

Posted June 3, 2008

Recently during a conversation with a local Realtor, we discussed common questions and misconceptions. One question that I had never heard was in regards to closing costs.

The Realtor’s buyer had asked the Realtor what “Settlement charges” were and if they were different than “closing costs.” As a professional in the business we throw these terms around all the time and occassonally forget that these “common” terms aren’t always common to the general public.

Closing costs are the costs to close on a mortgage loan. These costs normally consist of points, fees, attorney and title charges, escrow setup and any other charge or fee that is incurred from originating (putting together) a mortgage loan. They will vary from loan to loan, so there is no way to say what each fee should be.

Settlement charges are the charges at closing that are required to settle the transaction. These normally consist of points, fees, attorney and title charges, escrow setup and any other fee that is incurred from originating a mortgage… plus any additional inspections or charges (such as home warranties) that are incurred to complete the purchase / refinance of a home.

Generally speaking, these are the same thing. Technically speaking, the difference is that closing costs for a mortgage may not require a home inspection, radon inspection, water, pest or septic inspection. However, some of these inspections are usually highly recommended for a buyer to ensure there are not inherent problems with the home they are buying.

When you get an estimate on closing costs from your lender, pay careful attention to what is there. If there are not any inspection charges noted be prepared to account for those somewhere. A home inspection may not be required to get a mortgage loan, it is recommended that you get one and it won’t be on most estimates. So if it runs you $500 for the inspection, you must be prepared for the difference. And no, that is not a lender’s responsibility to estimate inspections… they are optional.

Hope that helps clear that up for anyone confused by the two terms.

Category Posted in Buying a Home, Mortgage 101, Mortgages