In real estate, a settlement fee is a charge that covers expenses in excess of the amount a person pays to purchase or sell a property. Settlement fees can encompass many types of expenses, but often include such things as application and attorney’s fees, loan origination fees, and fees for title searches. Settlement fees may also include inspection and appraisal charges and fees for filing deeds with the appropriate agencies. These fees may vary based on the details of a property transfer as well as from mortgage lender to mortgage lender.
Also called closing costs, some of the most common settlement fees are application and loan origination fees. Often, a lender or mortgage broker will include charges that cover the processing of a loan application as well as the credit check that goes along with it. A loan origination fee, on the other hand, covers the cost of preparing a mortgage. In some mortgage contracts, this fee is referred to as an underwriting or administrative fee instead. Sometimes the loan origination fee includes the fees charged by the lender’s lawyer and notarization fees as well.
Points are also a type of settlement fee. Points are fees that are charged a single time and can be negotiated with a lender to lower the interest rate a borrower will pay on a mortgage in exchange for paying a particular sum up front. For example, paying $1,000 US Dollars (USD) up front might lower a person’s interest paid over the life of his loan by one percent. Points paid at settlement are tax deductible in some jurisdictions as well.
Appraisal and home inspection fees also are often included in settlement costs. Before a lender will grant a mortgage for a particular property, an appraiser is usually sent out to determine how much the property is worth. Lenders may also require an inspection by a professional home inspector in order to analyze the structure of the property and look for evidence of issues such as termites. Appraisers and home inspectors charge fees, which are often included in settlement fee totals.
In most cases, the settlement fees a seller pays are negotiable. In order to make his home more attractive or easier to buy, a seller may agree to pay one or more of the settlement fees usually paid by the buyer. Having the seller assist with a settlement fee is usually legal, as long as the seller's contribution is detailed in the official agreement between the buyer and seller and doesn't violate any terms set by the lender.