What Are Settlement Costs?

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    Purpose

    • A buyer pays settlement costs to cover many types of charges that result in purchasing a home. Lenders, appraisers and other organizations charge the buyer for services provided when the buyer purchases the property. These charges cover costs incurred by these organizations and include each business's profit. Some of the settlement costs are designed to protect the buyer. Certain charges incur to ensure that the title of the property is transferred from the seller to the buyer in the correct, legal way.

    Charges

    • Settlement costs include a wide variety of different charges. Included in these costs are a loan origination fee, points, appraisal fees, survey fees and title insurance. Other fees include taxes, deed recording fees, credit report fees and attorney fees. All charges are itemized and listed on a good faith statement, or settlement statement. This statement lists all costs involved with the sale and separates costs between what the buyer and seller are each responsible for.

    Cost

    • According to Lending Tree, all settlement costs combined normally amount to between two to six percent of the amount of the loan amount. The amount of settlement costs varies based on several different factors. For example, every lender may charge a slightly different rate or amount for the loan origination. Other variables include the cost of a survey and appraisal and if inspections are required.

    Details

    • Many homebuyers have the settlement costs of the loan included in the mortgage amount. This helps the buyer avoid paying these costs up front. The costs are simply added to the loan amount and are financed for the duration of the loan. Other homeowners prefer paying these costs at the loan closing appointment. When this occurs, the buyer brings a cashier's check for the amount of costs. The title company or lender informs the buyer, typically the day before the closing, about the total required payment.

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