Are inspection and appraisal fees included in Closing Costs?

Asked by April Schmitz, River Falls, WI Sat May 1, 2010

Hello, I was told by my banker that my closing costs would be 3% of the sale price of my home ($179,000). I am wondering if appraisal fees and inspection costs are included in this or if this would be an addition to the 3%. I didn't receive a good faith estimate as it was a scramble to get the home.

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Joel Lobb’s answer
Joel Lobb, Mortgage Broker Or Lender, Louisville, KY
Thu Aug 8, 2013
On the new good faith estimate you have to list appraisal fees and inspections fees as part of the settlement charges, so I would advise you that both of these items are part of the closing costs.

Joel Lobb (NMLS#57916)
Senior Loan Officer
0 votes
CCC, Home Owner, San Diego, CA
Sat May 1, 2010
BEST ANSWER
Hello,
Inspection(s) are not required by most of the mortgages. Some mortgages require inspection(s).

Inspections are not part of the mortgage so that is an out side of closing expense to the buyer (and to the seller).

Some institutions (banks) ask the appraisal fee to be paid at front, some others wait until closing.

I do not know what kind of financing you are getting but since Mortgage Consultant mention 3%, I will think is a conventional loan. Ussually a 3% Buyer Closing Costs is request to the seller but, it is important to mention, that it does not mean that seller has to pay it. Maybe you need 3% of YOUR closing costs mortgage to be paid by seller to be able to buy a home.

Most closing costs are fixed, others are related to the mortgage amount and the last one, are related to the closing date/month. For example, if you close/purchase on the 20th day of the month, you will get charged (on a 30 day month) 10 days of loan interes. If you close on the 25th, you will pay 5 days, and so on.

Go back to the Mortgage person and request a break down of the Mortgage expenses, please.

Benito.
2 votes
Daryl & Brig…, Agent, Garden City, KS
Sat May 1, 2010
Inspection fee are optional and not part of closing costs. Most lenders have you pay for appraisal up front and not in the closing. It sounds like your banker is giving you a rough idea of what you can expect to pay. Keep in mind this 3% does not include your down payment. 3.5% required for FHA financing. 20% for conventional financing. Also know that if cash flow is an issue, you can ask the seller to pay up to 6% of the purchase price to go toward your closing costs.
1 vote
Brian Martuc…, Mortgage Broker Or Lender, Bethesda, MD
Sat Feb 28, 2015
The 3% statement was simply a rough estimate.
Appraisals are something done to close the loan, and its often paid at settlement, so its a closing cost.
It may be paid in advance of closing though, then it would not be a cost paid at closing, but its still a cost to close the loan.
If someone asked me to do their loan, and asked for a quick guesstimate on their closing costs, I'd say 3% of the sales price too, but in my head that would not include the home inspection fee.
Bottom line is, get a GFE ASAP.
0 votes
Dawn Beaudoin, Agent, Vancouver, WA
Sat Feb 28, 2015
Appraisal and inspection fees are in addition , in Washington these are generally an extra 1000 dollars that I tell my clients to budget for.
0 votes
Kim Carnagey, Agent, Cedar Park, TX
Sat Feb 28, 2015
Those items are done and paid for before closing.
0 votes
Gordon Simle, Agent, Minneapolis, MN
Sat Apr 19, 2014
An appraisal fee, credit report fee, and inspection fee are all typically out-of-pocket costs, paid upfront. However, your GFE may include the appraisal and credit report fees. These items would then be deducted from your final closing costs and reflected in your HUD-1 statement if they are paid upfront.

You should ALWAYS received a GFE in the beginning of the pre-approval process, and the final numbers on your HUD-1 statement should be close to those numbers given nothing major has changed in the process.
0 votes
Ted Rood, Mortgage Broker Or Lender, Maryland Heights, MO
Sun Mar 23, 2014
Big red flag here: "I didn't receive a good faith estimate." Lenders are legally required to provide a GFE within three days of loan application, and cannot order the appraisal without you signing a document that says you reviewed and approved the GFE. You should have gotten a DETAILED loan summary showing the exact breakdown of all costs, not a blanket "your costs will be 3%" statement. I give all my borrowers a precise loan summary before we even create a loan application, and write loans nationally. Glad to help anyone who wants more info. Thanks, Ted 314-740-0004
0 votes
Steve Vennem…, Agent, Pine Springs, MN
Fri Mar 14, 2014
home inspections usually are not part of the closing fees but the appraisal can be. Lenders usually want that paid in advance. http://www.mnhomescontractfordeed.com
0 votes
Joel Lobb, Mortgage Broker Or Lender, Louisville, KY
Thu Aug 8, 2013
On the new good faith estimate you have to list appraisal fees and inspections fees as part of the settlement charges, so I would advise you that both of these items are part of the closing costs.

Joel Lobb (NMLS#57916)
Senior Loan Officer
0 votes
Joel Lobb, Mortgage Broker Or Lender, Louisville, KY
Thu Aug 8, 2013
On the new good faith estimate you have to list appraisal fees and inspections fees as part of the settlement charges, so I would advise you that both of these items are part of the closing costs.

Joel Lobb (NMLS#57916)
Senior Loan Officer
0 votes
Joel Lobb, Mortgage Broker Or Lender, Louisville, KY
Thu Aug 8, 2013
your appraisal is part of your closing costs,
0 votes
Tara-Nicholle…, Agent, Alameda, CA
Sun May 16, 2010
You need a good faith estimate, stat! These fees should be included and discussed in the new HUD form Good Faith Estimate, even though the appraisal is always paid outside of escrow and inspection fees are paid outside, too, most often. The 3% rule of thumb, in my experience, does not generally include these two items, although your GFE should.

And also, in my experience, rules of thumb don't work in real estate - especially when you're talking about transactions in the under $200K range - it doesn't take much for a couple of fairly small line items to turn into another percentage point.
0 votes
James Wehner, Agent, Scottsdale, AZ
Sat May 8, 2010
Typically inspections and appraisal are paid outside of closing. Reasons being; inspections and appraisals can be performed that may never lead to a closed transaction. If items in the inspection are identified and resulting in the buyer cancelling, how would this be paid at closing from the seller's assistance. Same goes for the appraisal, if it doesn't appraise for the sales price and the buyer decides to cancel, there will be no reimbursement.

However, all of these terms can be negotiated to either be paid upfront by buyer or desperate seller. Buyer can also aske for the seller to reimburse them at closing for the costs of the inspection or appraisal.

You could alway ask the escrow officer handling your transaction to provide you whatever figures they have. An escrow officer won't know the exact numbers until they receive loan docs from your lender, but they can usually help you get close.

I would ask your lender for the GFE right now.

Good luck!
Web Reference:  http://www.jameswehner.com
0 votes
April Schmitz, , River Falls, WI
Sat May 8, 2010
We are getting a conventional mortgage because we are going to keep our existing home and use it as a rental. This being so, we can only have one FHA at a time so we are going 5% conventional. Our banker in from the metro MN and the home is in WI (border towns). The inspection was complete yesterday and for a 100 year home it went very well.

I will post in Wisconsin.
0 votes
CCC, Home Owner, San Diego, CA
Fri May 7, 2010
April, I have a favor to ask, would you please post your question and your "answer" comment in WI instead of Saint Paul?

A lot of Minnesota Realtors and Loan officers are licensed in WI but I, myself have some questions.

You paid $450 application fee, I will think that you pay for appraisal fee not an application but since you are buying in WI, I have to step aside and hopefully a WI Realtor/Loan officer will explain more about it.

I had not heard about the 9% rate, I have to think that it is a WI thing. Also, I am not clear about the mortgage, if your banker knew that you do not have 1.5% plus the downpayment... it gets confusing, in addition to not knowing if you will buy it conventional or FHA.

Good luck.


Benito.
0 votes
Kelly Putz, Agent, Fairfax, VA
Fri May 7, 2010
Hey April,

There are two kinds of inspections, depending on your loan. If you are going FHA, which it sounds like you might be, then hopefully you'll be having both.

An FHA inspector/appraiser comes out to the house and inspects it for loan approval. I have typically found these inspections to be cursory and only looking for major at-a-glance issues with the house. Your loan officer orders this inspection and the cost of it becomes part of your closing costs. However, if this inspection is done and you decide to back out of the deal, you are liable for the charges. Most likely, they will get put on a credit card you have given your loan officer for such fees.

Hopefully you have a good agent and they recommended you have a Home Inspection Contingency in your contract. This is the very first thing that is done after you get a ratified contract, typically within 7 days, and your agent should have several that he works with. This professional Home Inspector is hired by you and gets paid on the day of the inspection. Unless it's a fairly new house with nothing wrong with it, a good home inspection should take a minimum of 2-3 hours, not including the time it will take him/her to write up the report. You should ALWAYS be present at a home inspection and a good Realtor® will be there with you to explain and ask question to help you understand what you are looking at. If you are a first-time buyer, a good home inspector will give you your first lesson in home ownership and what it takes to maintain it as you go through the house from bottom to top.

Kelly Putz
Realtor®
DC/MD/VA
Kangal Real Estate
kputz@kangalre.com
703-961-8663
0 votes
April Schmitz, , River Falls, WI
Fri May 7, 2010
we are buying in wisconsin.
0 votes
CCC, Home Owner, San Diego, CA
Fri May 7, 2010
Hi again, are you buying in MN or WI?
0 votes
Tom Heath, Mortgage Broker Or Lender, Tucson, AZ
Fri May 7, 2010
April,

A couple of points for clarification.

1. If by closing costs you are including the amount necessary for your impound account, 3% could be realistic. I do not know the property tax rate in WI, but that could be effecting the total cash needed to close. 4 If this is an FHA or VA loan, there would be upfront costs of 2.25-2.50%, these are typically not paid in cash, but added to the loan amount. If the costs are just loan fees, this seems high. However, without seeing the breakdown of what is included I don't want to be overly critical.

2. There is a change coming to some conventional ARMs that require the lender to qualify the borrower at the original note rate +2% to ensure that they are equipped for reasonable changes in the market place. I find it unrealistic (although the lender could have their own stricter rules) that you would have to qualify at 9%.

3. If your application was taken on May 1st, you chould have already recieved a Good Faith Estimate and I suggest you speak to the loan officer's superior so you do not have to wait an additional 3 days. If you completed the application today, then you could have to wait.

4. SHOP. If you are uncomfortable, take the GFE you recieve and talk to a competitor (or 2). There is a section on page 3 of the GFE that allows you to list the key elements of the loan and compare them to lenders.

5. Check with your agent. Before you make any changes to your financing make sure your agent is aware and that you are violating any terms of your sales contract.
0 votes
April Schmitz, , River Falls, WI
Fri May 7, 2010
Met today with our lender. Now he says our closing cost are going to be 4.5%. He couldn't give a good faith estimate because he couldn't get the program to work properly but said that we would get it in the mail in 3 days. Since we cannot afford to pay the 1.5% more than we expected, he suggested we get a conventional fixed loan at 6.25%, and the bank will pick up $2000 of the closing costs. This is a credible bank but this seems a little fishy to me. We paid $450 for our application today but will go elsewhere if we can find a better deal. We are under contract and close June 24th. What are our options?

Banker also told us we couldn't get an arm because we would need to be able to qualify for a 9% APR even though the rate is only 3.5%. This also doesn't seems fishy to me because I thought people got arms because they are easier to get.
0 votes
Wow, you are getting seriously misled by this person. I would run, not walk, anywhere else asap if I were you. If you lose the $450 (which itself is another huge red flag. He can't produce a GFE, but he wants an application fee, really?) you'll still come out far ahead over this questionable (at best) loan.
Flag Thu Apr 3, 2014
Tyler Paur, , Eau Claire, WI
Thu May 6, 2010
Typically your appraisal is part of your closing costs, but you may get a credit for it when you close. Let’s say your Loan Officer collects $375 up front for the appraisal and the actual cost ended up being $325. When you close you will see a credit of $50. As for the inspection some lenders require an inspection, some don't, but usually an inspection is not a part of closing costs.
0 votes
Dianne Hicks, Agent, Rancho Bernardo, CA
Mon May 3, 2010
April
Here in California you pay for the home inspection and the appraisal seperately (not in the closing cost) as they happen. Good Luck!!!
0 votes
Peter Boyle, , Minneapolis, MN
Mon May 3, 2010
When they quoted you 3% they should have inclided the appraisal. Most lenders dont quote the inspection as a closing cost unles the loan program requires it. Your best bet is to request a Good Faith Estimate and Truth-in-Lending now. Your lender is required by law to provide it to you within 3 business days of property identification.

Peter Boyle
612 701 6816
0 votes
Lenny Frolov, Agent, Brooklyn Park, MN
Sun May 2, 2010
I agree that the 3% is just an estimate of your closing costs. As others have mentioned the appraisal is a closing cost that may or may not be paid at closing. The inspection is not part of the closing costs so that surely will be on top of the 3% you need to pay.
Web Reference:  http://www.lennyfrolov.com
0 votes
Brad Anderson, Agent, Maple Grove, MN
Sun May 2, 2010
April, the 3% is a rough estimate only. The actual cost will be different. The closing costs are everything associated with buying the house, some items are paid outside of closing, and some are paid at closing.
0 votes
Robin Silver…, Mortgage Broker Or Lender, Garden City, NY
Sun May 2, 2010
Even if you pay for the appraisal up-front it is considered part of closing costs. The inspection is not however. It is rare that closing costs come exactly to 3%, so definitely ask for a Good Faith Estimate. They are required to give you one within 3 days of taking your application. You should be signing something that acknowledges that you have received the GFE, and a form that says that you intend to proceed with the loan. You can also speak to your loan officer and just ask them to itemize the closing costs over the phone for you so you know exactly what you are paying for, and if you have enough money.
0 votes
Patti Hessli…, , Woodbury, MN
Sun May 2, 2010
April,

The home inspectors I have worked with have required payment at time of service for a buyer's home inspection; therefore, this cost is not typically included in the closing costs. The appraisal may be included in the closing costs if the lender does not request paying this fee upfront; sometimes referred to as paying outside of close or POC.

With lending getting tighter and tighter, I have heard some comments from lenders that they are considering having an independent home inspection performed for certain loan products. When and if this occurs, you may see an inspection as part of the closing costs.

In general, buyer closing costs are 3% of the sales price. However, several closing costs are relative to the loan amount, such as, morgage inpsurance premium (MIP), the mortgage registration (MRT), and the loan origination fee; and other closing costs are relative to the time of close, such as, tax prorations, upfront interest payments, and escrow requirements. RESPA laws require that the lender provide you a good faith estimate within specific time frames. Talk with your lender about the requirements to insure that it does not hold up the close of the sale. Good Luck.
0 votes
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