| What
you should know: What fees are included in closing costs?
Click here
for a blank copy of a "Good Faith Estimate." Any time
a mortgage lender quotes you an interest rate, they should send you
a Good Faith Estimate ("GFE") and a
Truth in Lending Statement, which we'll cover elsewhere. The Good Faith
Estimate shows what your closing costs should be; bear in mind that
until all of the documents are prepared, your lender won't necessarily
know exactly what the costs are to the penny -- that's why it's a Good
Faith Estimate and not a Good Faith Promise or a Guarantee of Closing
Costs.
Going through the
GFE, you'll see a few sections, each covering a different category of
closing costs:
Section
800: Covers costs associated
with the new loan itself
Origination
fee: One place in which you might be paying your lender
for his or her services; also see Yield Spread Premium. If you pay
an origination fee, you should be able to get a lower interest rate
than if you didn't -- essentially, an origination fee is prepaid
mortgage interest: You're choosing to pay a chunk of interest up
front, so over time you won't have to pay as much. Ask your CPA,
but origination fees are usually tax deductible. Often 1% or less.
Discount fee: A fee that you can choose to pay
to lower the interest rate on your loan. Often 1% or less.
Appraisal fee: Most lenders will require you to
pay an appraiser to come walk through your house, take measurements
and assess the market value of your home. Often $350 or less.
Credit report: A fee paid by the lender to pull
your credit, import the information about your credit accounts and
receive your credit scores. Often $25 or less. See fixing your credit
report.
Tax servicing fee: (Also known as a tax service
fee.) Your lender pays this amount to a third party company to make
sure that the property tax payments for your loan are properly set
up; this way you don't fall behind on property taxes. Often $75
or less.
Processing fee: Pays for the services of a loan
processor, who assists your lender by making sure all of the paperwork
in the file is properly submitted (e.g. title report is correct,
insurance declarations page shows the proper payee.) Often $400
or less.
Underwriting fee: Pays the lender to cover their
expense of going through all of your paperwork, making sure that
it qualifies you for the loan and that it's been properly submitted.
Varies widely; often $475 or less.
Flood cert: Your lender pays this amount to a third
party company to verify whether or not your home is in a federally
designated flood plain. If it is, you'll need to buy flood insurance
in addition to regular homeowners' insurance.
Admin fee: A catch-all fee category for other fees.
Push back on this one if it shows up on your GFE; it may be possible
to eliminate this one.
Section 900: Covers "prepaid"
items -- required by the lender to be paid in advance
Prepaid interest: Mortgage interest is always paid
"in arrears" -- that is, your payment this month covers
interest from last month. Usually this means that you'll "skip"
a month's payment when you close on your new loan -- which means
that interest for the remaining days in the month you close needs
to be paid up front, in this line.
Mortgage insurance premium: Covers mortgage insurance,
which is a different item from homeowners' insurance. Only used
when LTV ratio is higher than 80% and no second mortgage is being
used.
Hazard insurance premium: Most lenders will require
a full year's worth of hazard (also known as homeowners') insurance
paid up front before they'll lend on a property.
Section 1000: Covers reserves
(also known as impounds or escrows) set up by your lender to pay
taxes and/or insurance. Some people don't like the thought
of escrowing these funds, since the bank holds them on your behalf
and doesn't pay you any interest. Ultimately the amount of interest
that you might have earned on these funds is very small, and lenders
usually assess a higher risk profile to your loan if you don't let
them escrow (since they're not sure you'll be paying your taxes
and/or insurance, whereas they're sure that they would) -- they'll
charge you an up-front fee or increase your interest rate.
Hazard insurance: Sets up the escrow account to
pay hazard (or homeowner's) insurance.
Mortgage insurance: Sets up the escrow account
to pay mortgage insurance.
Property tax: Sets up the escrow account to pay
your property taxes.
Section 1100: Covers charges
from the title company. Beware of any GFE with nothing listed
in this section; some state laws allow mortgage brokers not to list
these expenses, since they're not directly due to the mortgage company
itself -- but you will almost always incur title company fees (someone
else might be paying them, but they're usually a cost of getting
a mortgage.)
Settlement or closing fee: The fee charged by the
title company for having a notary go through all of the paperwork
with you at closing, and for paying off current lienholders on the
property. Usually $220 or less.
Document preparation fee: Occasionally a third
party company will prepare the actual loan documents. Often $75
or less.
Title insurance fee: Title insurance is like hiring
an 800 pound gorilla to stand behind you in case there is ever any
doubt as to whether or not you actually own your property (i.e.
did the person from whom you bought it actually have clean title
to the place?) On a refinance, this is a bigger expense, since you're
buying an owner's policy; on a home purchase it's a lot smaller,
since the seller of the home pays for the owner's policy and all
you have to buy is coverage for the lender.
Endorsements: Additional forms of title insurance
covering region or property-specific lender requirements. Often
$110 or less.
Section
1200: Government recording and transfer charges.
Recording Fee: Counties charge a flat fee per page
to record things like your new deed of trust and the lien put in
place by your new mortgage. Your title company will estimate the
number of pages and charge a fee; they'll refund any portion of
it that they don't use.
Stamps: Various government entities put their hands
in your pocket when you buy property; you may have to pay $1 for
every $1,000 in purchase price.
|
|
Quick
interest rates
| Program |
Rate |
APR |
| 30 year fixed |
6.375% |
6.623% |
| Jumbo fixed 30 |
8.500% |
8.652% |
| 5 year ARM |
5.750% |
6.159% |
assumptions
| disclaimer |
