What are "settlement costs"?

Settlement costs, also known as closing costs, refer to the various fees and charges that are necessary to finalize a real estate transaction. These costs can include a variety of expenses, such as title searches, title insurance, survey fees, recording fees, and attorney's fees, among others. They are typically paid at the closing of the transaction, which is the actual point at which ownership of the property is transferred from the seller to the buyer.

Understanding settlement costs is critical because they can significantly affect the overall cost of purchasing a home. Buyers should be informed about these costs in advance as part of the loan estimate and closing disclosure, ensuring they are prepared for the financial obligations that accompany the completion of the purchase.

Other options do not accurately describe settlement costs. For instance, fees for processing a loan application are specific to the mortgage application process, while costs incurred after the mortgage is paid off pertain to different financial responsibilities. Charges related to homeowner's insurance, while associated with homeownership, are also distinct from the closing costs necessary to complete the transaction itself.