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One Time Closing Costs with the Lender
Loan Origination Fee -
This fee is usually known as a loan origination fee is often referred to as "points." One point is equal to one percent of the mortgage loan. On a VA or FHA loan, this fee to a maximum of 1% of the loan amount.
Loan Discount -
A loan discount is a one-time charge, over 1%, imposed by the lender to either lower the rate at which the lender would otherwise offer. This fee may vary.
Appraisal Fee -
Is your purchase worth the price your offering? Lenders want know, so they require an appraisal. The appraisal is to determine if the price you are paying for the home is comparable to recent sales. Usually runs between $300 - $500
Credit Report -
This fee covers the cost of a credit report, which shows your credit history. The credit report normally runs between $30 and $50.
Mortgage Broker Fee -
Most home loans are through mortgage brokers and they may list your points in this area instead of under Loan Origination Fee. They may also add in any broker processing fees for the administrative cost of processing your loan files required paperwork. Usually runs between $300 - $400
Tax Service Fee -
During the life of your loan, you usually will be making property tax payments with the lender. Called an Escrow Account.
Flood Certification Fee -
Lenders must determine if your property is located in a flood zone. If property is in flood zone, owner required to obtain flood insurance.
Other Fees
They vary from lender to lender and cannot be associated directly with a cost of the loan. You will normally find some combination of these fees on your Good Faith Estimate and usually varies between $400 and $700.
Document Preparation:
This fee is charged to cover costs of preparation of final legal papers, such as a mortgage, deed of trust, note or deed and is usually about $200.
Underwriting Fee:
Fee charged by investor for underwriting the submitted loan file and all of its paperwork. This fee is usually in the neighborhood of $300 to $350.
Items to be Paid in Advance
Prepaid Interest: Lenders require borrowers to pay the interest that accrues from the date of closing to the first monthly payment which is prorated daily. Since loans can close on any day, a certain amount of interest must be paid at closing. For example, if you close on the twentieth, and your payment is due on the first, you will pay ten days of prepaid interest.
Homeowner's or Hazard Insurance:
This insurance protects you and the lender against loss due to possible damages. Lenders will require the borrower to bring to the closing a paid-up first year’s policy.
VA Funding Fee:
The fee, currently 2 percent on no down payment loans, it is to enable the veteran who obtains a VA home loan to contribute toward the cost of this benefit, and thereby reduce the cost to taxpayers. The funding fee for second time users who do not make a down payment is 3 percent. The idea of a higher fee for second time use is based on the fact that these veterans have already had a chance to use the benefit once, and also that prior users have had time to accumulate equity or save money towards a down payment. Instead of actually paying this as an out-of-pocket expense, most veterans choose to finance it, so it gets added to the loan balance.
Mortgage Insurance:
Mortgage Insurance is usually required with less than an 20% down payment. It is paid monthly along with your mortgage payment. Mortgage insurance covers the lender in case you default on your loan.
Your Escrow Account with the Lender
Most loans require the establishing of an escrow account. Funds in this account are your funds, and the lender uses them to make the payments on your homeowner's insurance, property taxes, and mortgage insurance.
Homeowners Insurance Escrow:
A lender is allowed to keep two months of reserves in your escrow account. You will have to deposit two months proration's of your annual homeowners and hazard insurance policy into the escrow account to start it up.
Property Tax Escrow:
The amount of property taxes collected will vary and would be prorated based on the number of payments made on the new loan to until your property taxes are due. How much you will have to deposit towards taxes to start up your escrow account varies according to when you close. May be from zero to eleven months in advance.
Mortgage Insurance Escrow:
When required, most lenders allow this to simply be paid monthly. However, you may be required to put two months worth of mortgage insurance into your escrow account.
Closing Costs not associated with the Lender
Closing, Escrow, Settlement Fees:
Vary depending on the purchase price of your home.
Title Insurance:
Title Insurance assures the homeowner that they have a clear title to the property, the costs will vary.
Recording Fees:
Certain documents get recorded with your local county recorder. Fees vary, but probably run between $40 and $75.
Pest Inspection:
Is usually referred to as a Termite Inspection. If treatment is required, the amount to cover it can vary. The seller will normally pay for the treatment, but this is a negotiable item. The inspection alone is around $125.
Home Inspection:
A home inspector has a certain set of standards he uses when inspecting a home. Those standards may be higher than the local building code requires. Sometimes that becomes a problem between buyer and seller.
Home Warranty:
A Home Warranty usually covers such items as the major appliances, should they break down within a specific time. It can be paid by the buyer or seller. Usually between $350-$400
Homeowner's Association Transfer Fee:
If you are buying a condominium or a home with a Homeowner's Association, the association may charge a fee to transfer all of their ownership documents to you.
Asking the Seller to Pay Closing Costs
The seller's willingness to contribute to closing costs is often driven by market conditions and the way in which the request is made to the seller.
When you ask the buyer to pay a portion or all of your closing costs, in essence you are financing the closing costs. This is because the seller's contribution is typically offset by a higher purchase price. It is this higher purchase price that is financed with your mortgage loan
VA loans, you can ask the seller to pay everything.
FHA loans, the seller can pay almost any cost, up to three percent.
At the closing
You'll present your paid homeowner's insurance policy or a binder and receipt showing that the premium has been paid. The closing agent will then list the money you owe the seller (remainder of down payment, prepaid taxes, etc.) and then the money the seller owes you (unpaid taxes and prepaid rent, if applicable). The seller will provide proofs of any inspection, warranties, etc.
Once you're sure you understand all the documentation, you'll sign your name on several pages of documents, agreeing that if you don't make payments the mortgage lender is entitled to sell your property and apply the sale price against the amount you owe plus expenses. You'll also sign a mortgage note, promising to repay the loan. The seller will give you the title to the house in the form of a signed deed.
You'll pay the lender's agent all closing costs and, in turn, he or she will provide you with a settlement statement of all the items for which you have paid. You will give the lending agent a cashiers or certified check and prepare to take ownership of your new home.
Closing costs include real estate commissions, appraisal fees, loan fees, escrow charges, advance payments such as property taxes, homeowner's insurance, title insurance and etc.
The amount you pay for closing costs will vary. However, your lender will give you a good faith estimate of what your closing costs will be. An itemized list of charges will be prepared when you close and take title to your new property.
Title insurance companies insure that the home is yours, all yours.
More often than not, when you get to the closing table the lender has already sold the loan to another investor.
Title company personnel will explain your title policy and your closing statement.
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