Types of Closing Costs
Mortgage closing costs can be grouped
into 5 categories. After reviewing each category, you will able to
determine the purpose of each closing cost or fee.
Lender Fees
Lenders/Brokers charge different fees
for assisting you in obtaining a mortgage along with fees to help
you buy down a rate (if desired). Some lenders/brokers may charge
all the fees listed or they may only charge a few.
Origination Fee - A fee charged by a
lender/broker as compensation for providing you with a mortgage loan.
Discount Fee - "Points" you
can pay to buy down an interest rate. The more points you pay, the
lower the interest rate.
Application Fee - Lenders/Brokers may
charge this fee up front to offset the cost of processing your loan.
Processing Fee - A fee to cover the
costs to process your loan.
Underwriting Fee - A lender/broker fee
charged to determine if the lender is willing to lend you money based
on your application for a mortgage.
Administrative Fee - Similar to the
Processing Fee, this is a fee to cover the expenses of processing
your loan.
Document Preparation Fee - A fee to
prepare your specific loan documents to be signed at closing.
Courier Fee - This fee may or may not
be charged by a lender/broker. It covers the cost of sending your
loan documents to different parties.
Wire Transfer Fee - This fee may or
may not be charged by a lender/broker. A wire transfer is the way
lenders provide your loan funds to the closing agent for disbursement
to various parties.
Title Fees
When a lender/broker agrees to mortgage
a piece of property, the lender/broker needs to guarantee that the
property is indeed owned by the person(s) stated (either the seller
for a purchase or the borrower for a refinance). The fees listed assist
the lender/broker in determining the current owner of the property
and ensuring that information is correct.
Title Search - A fee charged by the
title company or another party to search public records to determine
if there are any liens on the property being financed.
Title Insurance - Sometimes included
in the title search fee, this insurance guarantees your lender that
the title company completed their title search correctly and also
closed the loan correctly so that your lender is in first lien position.
Settlement or Closing Fee - Your closing
agent will be responsible for the financial and property transfers
associated with your property and mortgage loan. A fee is charged
based on these services.
Notary Fee - This fee can be included
in the Settlement or Closing Fee. It is a charge for a licensed notary
public to notarize your loan documents.
Attorney Fee - This fee is similar to
the Settlement or Closing Fee. In some states, attorneys act as closing
agents and charge this fee instead of the Settlement or Closing Fee.
Government Fees
When you purchase or refinance your
home, the local government requires the changes resulting to become
public record. The government also collects the appropriate taxes.
Recording Fee - After closing, your
mortgage and property transaction is recorded with the appropriate
county. A fee to record the mortgage or deed of trust is charged by
the county.
State Mortgage Tax - Not all states
charge a mortgage tax and the tax rate depends on the jurisdiction
of the property. States that do charge a mortgage tax are Alabama,
Florida, Georgia, Hawaii, Kansas, Maryland, Minnesota, New York, Oklahoma,
Tennessee, and Virginia.
Property Tax - This tax rate is dependent
on your where your property is located. All states collect property
tax on a yearly basis.
Third Party Fees
The lender will require some additional
items that are paid to third parties.
Appraisal Fee - An appraiser will evaluate
your home to determine it's fair market value. This fee is paid to
the appraiser for this report.
Credit Report Fee - Your lender will
order a credit report to determine your creditworthiness. A fee is
paid to the credit service agency.
Tax Service Fee - A tax service fee
is collected and paid to an outside source that monitors your tax
account and alerts the lender to any unpaid tax bills.
Flood Certification Fee - A flood certification
determines if your property is located in a "flood zone,"
an area of high risk of flood damage. If your property is in a flood
zone, flood insurance will be required by your lender.
Survey Fee - A survey, or an Improvement
Location Certificate, is done by a licensed surveyor and determines
that your lot has not been encroached upon.
Pre-paid Items
These items are required by a lender/broker and will vary depending
on your specific situation.
Interest - You will owe your lender
interest for the number of days that you "use" your mortgage
in a month. If you were to close on the first day of April, you would
owe the lender 30 days of interest. The daily amount of interest is
based on your interest rate.
Hazard Insurance Premium - You must
have hazard insurance on your home if you have a mortgage lien on
your property because it protects the lender's investment. Your insurance
agent determines the amount of your yearly premium.
Mortgage Insurance Premium - Mortgage
Insurance (MI) is required by lenders on any property where the loan
amount is over 80% of the home's purchase price (or appraised value
if a refinance). The actual premium amount is determined by a MI company.
Your lender will typically choose the MI company.
Impounds - At closing, you will deposit
money into an escrow account. These funds are called impounds. The
money is used for paying your hazard insurance, mortgage insurance,
and property taxes when they come due. This escrow account will grow
each month as you make your mortgage payments because a portion of
your mortgage payment will be put into it. When your yearly insurance
or taxes are due, your lender will then be able to pay the amounts
with the money available in your escrow account.
Good Faith Estimate
Your lender/broker must provide to you
a Good Faith Estimate (GFE) of closing costs. By law, your lender/broker
is required to provide a GFE within three days after you have applied
for a mortgage. Each fee that the lender/broker expects to be charged
at closing, should be listed on the GFE. Because each lender's fees
may be different, HUD (Department of Housing and Urban Development)
has standardized all possible closing costs with codes. The chart
provided here will provide you with the appropriate code and typical
fee associated with each cost. Each fee listed here is an estimate.
Your lender/broker will provide you with the exact costs depending
on your loan situation.
| Name of Fee |
HUD Code |
Category |
| Origination Fee |
801 |
Lender Fee |
| Discount Fee |
802 |
Lender Fee |
| Application Fee |
|
Lender Fee |
| Processing Fee |
818 |
Lender Fee |
| Underwriting Fee |
809 |
Lender Fee |
| Administrative Fee |
810 |
Lender Fee |
| Document Preparation Fee |
821 |
Lender Fee |
| Courier Fee |
819 |
Lender Fee |
| Wire Transfer Fee |
820 |
Lender Fee |
 |
|
|
| Title Search |
1204 |
Title Fee |
| Title Insurance |
1108 |
Title Fee |
| Settlement or Closing Fee |
1101 |
Title Fee |
| Notary Fee |
1106 |
Title Fee |
| Attorney Fee |
1107 |
Title Fee |
|
|
|
| Recording Fee |
1201 |
Government Fee |
| State Mortgage Tax |
1203 |
Government Fee |
| Property Tax |
1104 |
Government Fee |
|
|
|
| Appraisal Fee |
803 |
Third-Party Fee |
| Credit Report Fee |
804 |
Third-Party Fee |
| Tax Service Fee |
808 |
Third-Party Fee |
| Flood Certification Fee |
822 |
Third-Party Fee |
| Survey Fee |
1301 |
Third-Party Fee |
|
|
|
| Interest |
901 |
Pre-paid Item |
| Hazard Insurance Premium |
903 |
Pre-paid Item |
| Mortgage Insurance Premium |
902 |
Pre-paid Item |
| Hazard Insurance Impound |
1001 |
Pre-paid Item |
| Mortgage Insurance Impound |
1002 |
Pre-paid Item |
| Property Tax Impound |
1004 |
Pre-paid Item |
| |
|
|
Annual Percentage Rate (APR)
Under the Truth In Lending Law, a lender/broker
must provide for you in writing the APR for your particular loan.
The APR is the percentage cost of the credit for which you are obtaining
on a yearly basis. The APR was designed by the federal government
to reveal the true total cost of getting a loan. The APR includes
the interest rate and other added costs such as points, origination
fees, and mortgage insurance (if applicable). The APR is designed
so that you can compare credit costs. Keep in mind that the APR is
not the same as the note rate. The note rate is the rate with which
your monthly mortgage payments are calculated. The APR will always
be higher than the note rate because it includes other closing costs
required by the lender/broker.
You can use the APR to assist you as
you shop for a mortgage. All written advertisements must include the
APR with the note rate. If the APR is considerably higher than the
note rate, you will recognize that there are many costs associated
with the loan thus resulting in a higher APR. If you are speaking
with a lender/broker over the telephone, ask him or her for the APR
for any rate you are quoted.
The APR is one tool that can be used
to assist you in getting your best deal. You will still need to get
a Good Faith Estimate that breaks down all closing costs that you
will be charged.
Final Decision
Here are a few tips to use as you compare
closing costs among lenders.
Get an updated GFE when you lock-in your interest rate.
If
your lender/broker doesn't know the cost of a particular fee, ask
him or her to find out.
Remember
that it's a Good Faith Estimate, but your lender should still be confident
that your GFE is close to the actual charges.
Some
fees can't be negotiated, some can. Try negotiating the 800 fees.
These fees go directly to the lender.
Compare
APR's
Verify
your settlement statement before closing, providing adequate time
for correction of mistakes
As
always, ask Allie Mae for additional advice
