What costs should I expect at the loan closing?
On the day of your loan closing you will be required to pay your down payment (if you have one) and the closing costs.
Most closing costs are paid by the buyer, but some of the fees are prorated, by date, to the seller and the buyer. In order to be prepared to pay the closing costs, you will receive a Good Faith Estimate (GFE) and an Approximate Loan Cost Illustration (ALCI) to show you what costs are associated with your home loan. You should receive this no later than 3 days after your loan application.
If purchasing, your closing costs can also be paid by the seller and/or the lender through the interest rate. When you are quoted a rate it is usually a PAR rate, meaning it is the lowest rate available without having to use discount points to buy it down. Any rate above PAR will give you a credit that can be used towards your closing costs.
For every .125% you go above PAR the higher the credit will be. The exact credit will depend on that pricing at that exact time as mortgage backed securities are always changing and can change without notice until you lock in your interest rate.
Raising your rate will increase your monthly payment, but it may also save you thousands in up front closing costs. You should review the cost vs. benefit with me or your loan officer to see if this would be a benefit to you or not. (Beware of rates online as they usually include a 1% discount point buying down the rate.)
Before you make long term decisions about the terms of your mortgage, such as locking in an interest rate, you should review the Good Faith Estimate and review the cost vs. benefit to make sure you locking at a rate the is best for your short term and long term goals.
Typically the closing costs will be from 1-6% depending on the loan amount. It is a good idea prior to closing to review your HUD-1 Settlement Statement that shows all of the fees to the penny and compare it with your original Good Faith Estimate to make sure the fees are in line with what you were told at the start. As of April 2015 it will be required that you have the closing statement 3 days prior to closing no matter what.
Some fees such as Earnest Money, Home Inspection and Appraisal may be required before closing. Certain fees vary from lender to lender, so it is always good to ask and to review all costs before signing and moving forward.
Common closing costs and fees that you may expect are:
Possible Up Front Fees Prior To Closing:
Earnest Money: When you make an offer to buy a home it is usually accompanied by a check. This check is referred to as the earnest money deposit. The reason for the deposit is to show the seller that you earnestly intend to purchase the property. The amount of the deposit varies from home to home and depends on what the seller has asked for. The earnest money can be applied to the down payment or closing costs at closing reducing the amount you need to bring to closing. If you are doing a 100% loan and the seller is paying your closing costs or they are being paid through the rate you may get a portion or all of your earnest money refunded to you at closing. This is not a fee that is part of your closing costs. This is something you work out with your Real Estate Agent when you make your offer. Always discuss earnest money with your Real Estate Agent. (purchase only)
Home Inspection Fee: The home inspection is not required for your home loan, but is highly suggested since it is a great tool to learn more about your property and any possible issues that need to be addressed through your contract inspection resolution period or after closing. Fees can range based on the size and company. (purchase only)
Appraisal Fee: Expect to pay your appraisal fee at the time the appraisal is done. The appraisal is ordered through an independent appraisal company who picks the appraiser based on experience and location to the property. The appraisal is a factor in determining the amount the lender will loan. The cost can be anywhere from $350 to $475 for a single family, condo or townhouse. The charge can be more when it’s an investment property since they may have to include a rent schedule or if the appraisal has to be ordered on a rush. Conventional appraisals usually runs $375.00, FHA and VA usually run $475.00. Rush fees are typically $100.00.
Possible Fees Paid At Closing:
Underwriting Fee: The only fee FirstCal charges is a flat $995.00 for Conventional, FHA, VA and USDA home loans. Third party fees still apply.
Origination Fee: We do charge an additional 1% origination (1% of the loan amount) fee on CHFA, Denver Metro Mortgage Plus and NHF home loans. We don’t charge an additional origination fee for regular FHA, VA, USDA or Conventional loans.
Application Fee: required by the lender to process your loan application, often required with the application, generally non-refundable. WE DON’T CHARGE AN APPLICATION FEE. You should avoid any lender who does.
Credit Report Fee: WE DON’T CHARGE FOR THE CREDIT REPORT, however other lenders may charge for this fee up front or at closing.
Survey Fee: Not required on all properties, but if requested by title you may need to get an improvement location cert to verify the legal position of the home on the property and ensures that there has been no encroachment on the property. A full survey may be required depending on the type of property, but usually an ILC is sufficient.
Title Search Fee: charged for a detailed search of the historical records related to a property to ensure that the seller is legal owner, that there are no liens, restrictive covenants, outstanding judgments or other claims against the property (A certificate of title issued as a result of a title search does not necessarily protect against hidden defects which did not show up in the search – often the lender will require title insurance for protection against such claims). The title company will charge for a closing fee for the buyer side of closing and usually the buyer and seller will split the sellers side of the closing fee.
Title Insurance: often required by the lender for protection against hidden title defects; a lender’s policy only protects the lender – a buyer may also opt to purchase an owner’s title insurance policy.
Discount Points: optional payment to lower the interest rate (each point is 1% of the mortgage amount – $120,000 mortgage discount point would cost $1,200 and typically lower the interest rate by 0.125 percent). This can change based on what the current market is and it is best to look at the cost vs. benefit to see if it makes sense short term and long term to buy down the interest rate.
Recording or Transfer Fees: a small fee charged to cover the paperwork to record the home purchase and transfer ownership with the State and County.
Interim Interest: interest from the closing date to the end of the month generally charged to the buyer Property Taxes: buyer’s prorated portion of state and local government property taxes already paid by the seller (such as annually paid taxes).
Escrow Account Payments: Charges to cover costs or payments which will be due after the closing; escrow accounts are often set up to continue for the life of the loan, where a specified portion of the mortgage payment goes into escrow to cover certain on-going property related expenses and payments such as taxes and insurance. This is specifically set up to cover your property taxes and homeowners insurance so the lender will have enough funds to cover these fees when they become due.
Homeowners Insurance: Insurance is paid ahead of time. So for a single family home you will be paying for an entire year’s policy at closing and the lender will collect 2 to 3 months in reserves too. For condo’s and most townhomes you will get an HO6 policy that covers the interior of the property since the HOA usually covers the exterior.
HOA Fees: Most Homeowners Associations will charge a fee to transfer the ownership information and 1 to 2 months of the monthly HOA fee at closing.
*Always remember to ask questions, if something doesn’t look right, if you don’t know what a fee is or if a fee changes. Make sure you get answers and don’t be satisfied until you do.
If you ever have any mortgage related questions please email me at email@example.com or call me at 303-521-7169.Sean Young Mortgage Loan Officer