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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. Generally, you can expect closing costs to equal from 3 to 6 percent of your mortgage loan amount.

Appraisal Fee

This is a one-time charge, required by most mortgage lenders, to produce an "appraisal"; a statement of the value of the property. An independent fee appraiser completes the work on behalf of the mortgage lender. This fee is usually higher for unique and more expensive homes.

Credit Report Fee

Another one-time fee, covering the cost of a credit report on the buyer, produced 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 Mortgage.

Loan Origination Fee

Often referred to as "points," with one point being equal to one percent of the mortgage loan amount. As a rule, if you are willing to pay more in points, you will get a lower interest rate. Any points in excess of one point are referred to as "discount" points.

Private Mortgage Insurance (PMI) Premium

If the amount of your down payment is generally less than 20% of the purchase price, you may be required to pay a fee for private mortgage insurance, which protects the lender against loss in the event of foreclosure. You may also be required to place funds into a special reserve account (called an escrow account) held by the lender to pay for renewal of the PMI coverage.

Prepaid Interest

Depending on the day of the month your loan closes, this charge may vary from a full month of interest to just one day 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: The Good Faith Estimate

The 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 homebuyer and are not particular in total to all homebuyers)

Non-Recurring Closing Costs 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 Other Lender Fees Document Preparation Fee Underwriting Fee Administration Fee Appraisal Review Fee Warehousing Fee

Items Required to be Paid in Advance

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

Reserves Deposited with the Lender:

Homeowners Insurance Impounds Property Tax Mortgage Insurance Impounds

Non-Recurring Closing Costs not associated with the Lender:

Closing/Escrow Fee Title Insurance Notary Fees Recording Fees Pest Inspection Home Inspection Home Warranty Homeowner’s Association Transfer Fee

Refinancing Associated Costs

Interest Re conveyance Fee Demand Fee Sub-Escrow Fee Loan Tie-In Fee

Closing Costs: An Explanation of Terms


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 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 r