Closing Costs
There are two broad categories of closing costs. Non-recurring closing costs are items that are paid once and you never pay again. Recurring closing costs are items you pay time and again over the course of home ownership, such as property taxes and homeowner’s insurance.
Items Required to be Paid in Advance
Pre-paid Interest
Mortgage loans are usually due on the first of each month. Since loans can close on any day, a certain amount of interest must be paid at closing to get the interest paid up to the first. For example, if you close on the twentieth, you will pay ten days of pre-paid interest.
Homeowner's Insurance
This is the insurance you pay to cover possible damages to your home and other items. If you buy a home, you will normally pay the first year's insurance when you close the transaction. If you are buying a condominium, your Homeowners' Association Fees normally cover this insurance.
VA Funding Fee
On VA loans, the Veterans Administration charges a fee for guaranteeing your loan. If you have not used your VA eligibility in the past, this is two percent of the loan balance. If you have used your VA eligibility before, it is three percent of the loan. If you are refinancing from a VA loan to a VA loan, it is three-quarters of a percent of the loan amount. 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. This is why the loan balance on VA loans can be higher than the actual purchase amount.
FHA Mortgage Insurance Premium
This is charged on FHA purchases of single family residences (SFR's) or Planned Unit Developments (PUDs) and is 1.5% of the loan balance. Like the VA Funding Fee it is normally added to the balance of the loan. Unlike a VA loan, the homebuyer must also pay a monthly mortgage insurance fee, too. This is why many lenders do not recommend FHA loans if the homebuyer can qualify for a conventional loan.
Mortgage Insurance
though it is extremely rare nowadays, some first-time homebuyer programs still require the first year mortgage insurance premium to be paid in advance. Most mortgage insurance (when required) is simply paid monthly along with your mortgage payment. Mortgage insurance covers the lender and covers a portion of the losses in those cases where borrowers default on their loans.
Non-Recurring Closing Costs Associated with the Lender.
Loan Origination Fee
The loan origination fee is 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. On a VA or FHA loan, the loan origination fee is one point. Anything in addition to one point (on government loans) is called "discount points."
Loan Discount
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 your property serves as collateral for the mortgage, lenders want to be reasonably certain of the value and they require an appraisal. The appraisal looks 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 and FHA loans are higher than on conventional loans because they require the appraiser to inspect items not strictly associated with value.
Credit Report
As part of the underwriting review, your mortgage lender will want to review your credit history. The credit report can be as little as seven dollars, but normally runs between $21 and $60, depending upon the type of credit report required by your lender.
Lender's Inspection Fee
You normally find this on 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 they will sometimes list your points in this area instead of under Loan Origination Fee. They may also add in any broker processing fees in this area. The purpose is so that you clearly understand 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 your loan you will be making property tax payments, either on your own or through your impound account with the lender. Since property tax liens can sometimes take precedence over a first mortgage, it is in your lender’s interest to pay an independent service to monitor property tax payments. This fee usually runs between $70 and $80.
Flood Certification Fee
Your lender must determine whether or not your property is located in a federally designated flood zone. This is a fee 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 your property.
Other Lender Fees
We put these in a separate category because they vary so much from lender to lender and cannot be associated directly with a cost of the loan. These fees generate income for the lenders and are used to offset the fixed costs of loan origination. The Processing Fee above can also be considered to be in this category even though we did not also include it here. You will normally find that the total of some combination of these fees usually varies between $400 and $700.
Document Preparation
Before computers made it fairly easy for lenders to draw their own loan documents, they used to hire specialized document preparation firms for this function. This was the fee charged by those companies. Nowadays, lenders draw their own documents. This fee is charged on almost all loans and is usually in the neighborhood of $200.
Underwriting Fee
Once again, it is difficult to determine the exact cost of underwriting a loan since the underwriter is usually a paid staff member. This fee is usually in the neighborhood of $300 to $350.
Administration Fee
If an Administration fee is charged, you will probably find there is no Underwriting Fee. This is not always the case.
Appraisal Review Fee
Even though you will probably not see this fee on your Good Faith Estimate, it is charged occasionally. Some lenders routinely review appraisals as a quality control procedure, especially on higher valued properties. The fee can vary from $75 to $150.
Wire Transfer Fee
In the "olden days" lenders usually funded their loans with a check. Because of changes made in state laws to benefit banks and savings & loans, mortgage bankers mostly switched to funding by wire, which provided an excellent opportunity to add a new fee to the list of closing costs.
Warehousing Fee
This is rarely charged and begins to border on the ridiculous. However, some lenders have a warehouse line of credit and add this as a charge to the borrower.
Crye-Leike Realtors (931) 648-2112
CLARKSVILLE TN REAL ESTATE