Going to a settlement and signing a contract on a new home can be bewildering. Home buyers are usually required to sign a seemingly

endless pile of documents, most of which are written in legalese. While you will not understand all of the details involved in the settlement process,

there are certain important items you should know about so that you can achieve the best possible terms for yourself in the transaction. The

following fees will be included in the contract.

Appraisal fee An appraisal is an estimate of the fair market value of your home. Appraisals help both the lender and the buyer to

determine if the sale price is consistent with the actual value. An appraiser inspects the house and the neighborhood and makes an estimate based on the

price of comparable houses and other factors. The appraisal provides no guarantee that the property is free of defect. Lenders insist on an appraisal

to see how much they could recover by selling you house if you default. The fee for this service may vary considerably depending on the

specific characteristics of you house.

Attorney's fees If the lender requires an attorney to draw up any of the settlement documents, you may be charged a fee a flat amount

or a percentage of the loan. If you hire a lawyer to assist with the settlement, you will have to pay an additional fee at or immediately

following settlement.

Credit report The lender may charge a fee for investigating your credit history.

Earnest Money Earnest money is a deposit paid to a seller to show you are serious about buying a house. Your receipt for this payment is

called a binder. If you buy the home, the earnest money is applied to your downpayment. If not, the earnest money is returned, minus expenses for

processing. Understand refund procedures before you make a deposit.

Escrow fees and accounts Escrow involves having a third party hold funds and/or documents until you and the seller complete

settlement. Depending on the circumstances of your loan, you may be asked to make monthly payments to an escrow account after you purchase you home.

Money in the account may be used to pay taxes, insurance and any other regular assessments as they fall due. Such accounts serve a similar purpose

to withholding income tax from your paycheck by putting aside money each month, you avoid large annual or semiannual payments. You may

be charged a fee for the service. In some states, escrow accounts draw interest.

Sometimes, escrow agents handle settlements. Rather than you and the lender meeting to sign all the documents and transfer money, the agent

works with you and the lender separately to ensure that everything is done properly. Once again, a fee is required for this service.

Loan origination fee A lender will charge a fee for the cost of processing the loan, usually calculated as a percentage of the loan amount.

Loan discount (Points) The largest of your settlement costs may be the "points" lenders require to make the yield on your loan more

profitable. A point is 1 percent on your loan amount. If you are borrowing $50,000, one point equals $500. Points are tax-deductible if they are paid

separately and not deducted from the loan amount. For VA loan, you can be charged a maximum of one point, but the number of points can be higher for

FHA and conventional loans.

On a 30-year-loan, each point that you pay reduces your interest rate by roughly one-eighth of a percent. You may be faced with a choice

between two mortgages in which one has lower monthly payments but involves paying more points up front. Annual percentage rate calculations include

buyers' points, so ask for the annual percentage rate (APR) to help make your assessment. Keep in mind that an APR is a 30-year composite figure. If you

sell you new home after a few years, the average annual cost of your points will be much higher than is reflected in the APR. If you plan to move

soon, you might be better if with a loan that had a slightly higher rate but fewer points.

Property survey fee You may have to pay to have your lot surveyed, especially if there is a question about the boundaries. The cost will

depend on the complexity of the survey.

Recording fee Because title changing hands, the transaction must be recorded with your city, county or other appropriate branch of

government. The fee covers administrative costs.

State and local transfer taxes Some jurisdictions levy taxes on the transfer of property or real estate loans.

Settlement and cost between buyer and

seller Your builder may have already paid the annual property taxes on your new home or filled up

your fuel tank. When title changes hands, you reimburse the builder for a proportional share of the taxes, any fuel that remains in the tank, and any

other prepaid costs.

Title search and insurance A title search involves having someone look through public records to see if anyone else has a claim to your

property. A lender does not want to lend you money only to learn in the event of foreclosure that somebody other than you has a prior claim to your property.

You will normally be required to purchase lenders' title insurance to guard against a faulty title search as well as hazards that even the most

thorough search will not reveal such as a forged deed that does not transfer title, claim by a previously undisclosed relative of a former owner, or a

mistake in the records. For a one-time premium at closing, title insurance will clear up title problems, pay the lender's legal expenses for defending against

an attack on title, or pay claims on property the lender may lose.

Lenders' title insurance does not compensate buyers for any legal expenses they might incur, or the value of property they might lose. A

separate owners' title insurance is available to safeguard the buyer. Whether the seller or the buyer pays for owners' title insurance depends on local custom.

The list of settlement terms is not all-inclusive. You may also be charged fees for notarizing documents and other miscellaneous items.

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