Closing Costs

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Below are some of the costs you may incur. Some are one-time fees, while others recur over the life of the loan. When you first apply for your loan, you will receive a Good Faith Estimate of Settlement Charges and a booklet explaining these costs, to minimize surprises. Generally, you can expect closing costs to equal from 3 to 6 percent of your mortgage loan amount.   
  Appraisal FeeThis is a one-time fee for an “appraisal,” a statement of property value required on most loans. An independent fee appraiser makes the appraisal. Unique and more expensive homes usually have a higher appraisal fee.

Credit Report Fee

This one-time fee covers the cost of your credit report, which is processed by an independent credit-reporting agency.

Document Preparation Fee

There may be a separate, one-time fee that covers preparation of the final loan papers, including the note and the deed of trust.

Loan Origination Fee

Often referred to as “points,” one point is equal to one percent of the mortgage loan. As a rule, if you are willing to pay more in points, you will get a lower interest rate. Anything in addition to one point is referred to as “discount points.”

Miscellaneous Title Charges

The Title Company will charge fees for a policy of title insurance and escrow services, which may include charges for document preparation, notary fees, recording fees and a settlement of closing fee. These are all one-time charges. Local custom by county will dictate whether buyer or seller pays all or a portion of these fees.

Private Mortgage Insurance (PMI) Premium

Depending on the amount of your down payment (generally less than 20%), you may be required to pay a fee for private mortgage insurance, which protects the lender against loss due to foreclosure. You may also be required to place funds into a special reserve account (called an impound account) for PMI, which will be held by the lender.

Prepaid Interest

Depending on the day of the month your loan closes, this charge may vary from a full month of interest to just a few days of interest. If your loan closes near the end of the month, you will have to pay only a few days of interest.

Taxes and Hazard Insurance

Based on the month you close, property taxes will be prorated between you and the seller. You may also be required to pay a full year’s hazard insurance (or homeowner’s insurance) premium in advance. In addition, you may also be required to place funds into a special reserve account (impound account) for taxes and insurance, which is held by the lender. You absolutely must have this to obtain a mortgage.

The “dwelling coverage” portion of your hazard insurance covers costs to completely rebuild your home, while the “liability coverage” protects you against accidents that occur on your property. “Personal Property Coverage” pays to replace your possessions and generally totals 50 to 75 percent of the dwelling coverage amount. Flood and earthquake insurance policies also are available and are recommended if you are in high-risk areas.

Title Insurance Fees

There are two title polices – a buyer’s policy, which protects the new homeowner, and a lender’s title policy that protects the lender against loss due to a defect in the title. These are both one-time fees.

  CLOSING COSTS — Good Faith EstimateThe Good Faith Estimate of loan closing costs are made pursuant to the requirements of the Real Estate Settlement Procedures Act (RESPA). These are estimated settlement costs which the buyer will be responsible for in conjunction with the settlement of the mortgage loan. There are two general categories of closing costs, non-recurring and recurring. Non-recurring closing costs are items that are paid once, while recurring costs are items paid repeatedly over the life of the loan.

This is a detailed summary of costs you may have to pay when you buy or refinance your home. They are listed in the order in which they should appear on a Good Faith Estimate you obtain from your mortgage lender. Elements of the Good Faith Estimate are: (Costs will apply differently to each home buyer and are not particular in total to all home buyers)

GOOD FAITH ESTIMATE

Non-Recurring Closing Costs Associated with the Lender Non-Recurring Closing Costs not associated with the Lender
Loan Origination Fee 
Loan Discount Fee 
Appraisal Fee 
Credit Report Fee 
Lender’s Inspection Fee 
Mortgage Broker Fee 
Tax Service Fee 
Flood Certification Fee 
Flood Monitoring
Closing/Escrow Fee 
Title Insurance 
Notary Fees 
Recording Fees 
Pest Inspection 
Home Inspection 
Home Warranty 
Homeowner’s Association Transfer Fee 
Other Lender Fees Reserves Deposited with the Lender

Document Preparation Fee 
Underwriting Fee 
Administration Fee 
Appraisal Review Fee 
Warehousing Fee

Homeowners Insurance Impounds 
Property Tax 
Mortgage Insurance Impounds
Items Required to be Paid in Advance Refinancing Associated Costs

Prepaid Interest 
Homeowner’s Insurance 
VA Funding Fee 
Up Front Mortgage Insurance Premium (UFMIP)

Interest 
Reconveyance Fee 
Demand Fee 
Sub-Escrow Fee 
Loan Tie-In Fee

 

EXPLANATION OF TERMS

NON-RECURRING CLOSING COSTS ASSOCIATED WITH THE LENDER
Loan Origination FeeThe loan origination fee is often referred to as “points”. One point is equal to one percent of the mortgage loan. As a rule, if a borrower is willing to pay more in points, then the borrower will get a lower interest rate.

Loan Discount Fee

On a government loan, the loan origination fee is normally listed as one point or one percent of the loan. Any points in addition to the loan origination fee are called “discount points”. On a conventional loan, discount points are usually lumped in with the loan origination fee.

Appraisal Fee

Since the property serves as collateral for the mortgage, lenders want to be reasonably certain of the value and they require an appraisal. The appraisal is used to determine if the price you are paying for the home is justified by recent sales of comparable properties. The appraisal fee varies, depending on the value of the home and the difficulty involved in justifying value. Unique and more expensive homes usually have a higher appraisal fee. Appraisal fees on VA loans are higher than on conventional loans.

Credit Report Fee

As part of the underwriting review, the mortgage lender will want to review the borrower’s credit history. The cost varies depending upon the type of report requested. 

Lender’s Inspection Fee

This is generally associated with new construction and is associated with what is called a 442 inspection. Since the property is not finished when the initial appraisal is completed, the 442 inspection verifies that construction is complete with carpeting and flooring installed.

Mortgage Broker Fee

About seventy percent of loans are originated through mortgage brokers and sometimes the points associated with the loan are listed here instead of under Loan Origination Fee. They may also add in any broker processing fees in this area. The purpose is to clearly indicate how much is being charged by the wholesale lender and how much is charged by the broker. Wholesale lenders offer lower costs/rates to mortgage brokers than you can obtain directly, so you are not paying “extra” by going through a mortgage broker.

Tax Service Fee

During the life of the loan the borrower makes monthly property tax payments, either on one’s own or through an impound account with the lender. Since property tax liens can sometimes take precedence over a first mortgage, it is in the lender’s interest to pay an independent service to monitor property tax payments.

Flood Certification Fee

The lender must determine whether or not the property is located in a federally designated flood zone. This fee is usually charged by an independent service to make that determination.

Flood Monitoring

From time to time flood zones are re-mapped. Some lenders charge this fee to maintain monitoring on whether this re-mapping affects the property.

NON-RECURRING CLOSING COSTS NOT ASSOCIATED WITH THE LENDER

Closing/Escrow Fee

The fees associated with the closing.

Title Insurance

Title Insurance assures the homeowner that they have clear title to the property. The lender also requires it to insure that their new mortgage loan will be in first position.

Notary Fees

Most loan documents have multiple sets that must be notarized.

Recording Fees

Certain documents are recorded with the local County Recorder’s Office.

Pest Inspection

This is also referred to as Termite Inspection. This inspection tests for pest infestations and other items such as wood rot and water damage. If repairs are required, the amount to cover those repairs is usually covered by the seller, but it is a negotiable item. Usually the pest inspection fee is paid by the seller and is not normally reflected on the Good Faith Estimate.

Home Inspection

Since it is the home buyer’s choice to obtain a home inspection, this cost may not be reflected on the Good Faith Estimate. However, it is highly recommended.

Home Warranty

This is an optional item. A Home Warranty usually covers such items as the major appliances, should they break down within a specific time. Often this is paid by the seller.

Homeowner’s Association Transfer Fee

When buying a condominium or a home with a Homeowner’s Association, the association often charges a fee to transfer all of their ownership documents to the buyer.

REFINANCING ASSOCIATED COSTS

Interest

When closing the transaction on a refinance, there may be outstanding interest due on the old loan.

Reconveyance Fee

This fee is charged by the existing lender when they “reconvey” their collateral interest in the property back to the borrower through recording of a Reconveyance.

Demand Fee

The existing lender may charge a fee for calculating payoff figures.

Sub-Escrow Fee

This fee is actually charged by the Title Company.

Loan Tie-In Fee

This fee is charged by the Escrow Company.

 

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