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Closing Costs When Buying or
Refinancing a Home
When you talk to a lender,
they usually prepare a "Good Faith Estimate" of closing costs.
Sometimes they will give it to you right away, but they are only
required to mail it to you within three business days of
application.
Because the lender is the
one who prepares the estimate, many buyers associate all the closing
costs with the lender. This is not correct. The lender
is only preparing an estimate of the costs you may incur when buying
or refinancing and is not required to list all potential
costs. Nor does the lender know what all the costs are
actually going to be. The estimate is an educated guess based
on past experience. Some things will get left out.
Always anticipate the actual costs are going to be more than the
estimate.
When comparing two lenders,
don't look at the "total" cost. Only compare the costs
actually charged by each lender. Both lenders are only making
informed guesses about costs charged by others.
The next page is a detailed
summary of costs you may have to pay when
you buy or refinance your home. The costs are listed in the order
that they should appear on a Good Faith Estimate you obtain from a
mortgage lender.
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.
Some of the items
that appear here do not traditionally appear on a lender's Good
Faith Estimate and lenders are not required to show all of these
items.
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.
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