Closing Costs
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Buyers's Closing Cost
Lender-related costs
The cost of a loan is more than rates and points. Prior to selecting a lender for a specific loan, you should ask what other fees there will be in addition to the points. Within 3 days of application, you'll be mailed what's called a Good Faith Estimate of what the loan will cost. And this is just what the name says. It's an estimate. And, in "good faith," it's as accurate as possible given the information available at the start of the loan process.
You'll receive an initial Truth-in-Lending disclosure which includes the APR and other financial terms within 3 days of application. A HUD-1 Settlement Statement will be issued to you shortly prior to closing that provides you with the full disclosure of closing costs. It establishes the total funds you must bring to the closing meeting and itemizes how and to whom the funds are to be disbursed.
Typical lender-related costs include:
Mortgage Insurance
Payment for an insurance policy that protects the lender against loss
should you fail to make payments. This type of insurance is typically
required on loans with less than a 20% down payment. These costs may
be paid upfront, included in your monthly payment, or included in
your interest rate. To see how to avoid traditional mortgage insurance,
see TAMI and HELOC.
Tax Service
Fee covering the cost of having a tax service agency monitor the payment
of your property taxes. If you elect to pay taxes yourself, the agency
monitors the tax rolls for the life of the loan and informs the lender
if the taxes ever become delinquent so the lender can take action
to protect its lien position.
Flood Check Fee
Covers the Federal Emergency Management Agency's (FEMA) review to
determine if a home is located in a flood
Application/Processing
Underwriting Fee
Fees charged by the lender to cover the cost of completing the application,
processing the loan, evaluating the risks involved, and establishing
suitable terms and conditions.
Document Preparation Fee
A fee charged by the lender for preparing all the documents required
for the closing of a loan.
Third Party Fees
Third-party fees are collected by your lender for services provided
by outside parties, such as an appraiser. All lenders typically require
some of these fees. Many of the services are regulated by various
governmental organizations.
Appraisal Fee
Payment for an opinion or estimate of the value of a property. A report
is prepared by a professional appraiser to explain the determination
of the fair market value. This fee is often paid for at the time of
application for a home loan.
Credit Report Fee
Covers the cost of the credit report used to help determine your creditworthiness.
These reports are obtained from credit agencies and evaluate your
capacity to pay debts or history of paying debts. This fee is often
paid for at the time of application for a home loan.
Loan Origination Fee
Covers the lender's administrative costs of processing the loan. It
may be expressed as a percentage of the loan (for example, 1% of the
home loan amount). This fee is customary on a government loan.
Loan Discount Points
Amounts paid to a lender at closing in exchange for a discount of
the interest rate on your loan. Each point you pay equals 1% of the
home loan amount, so for a $100,000 loan, 1 point equals $1,000. In
many cases, discount points are tax-deductible (ask your tax advisor).
For complete details on how deductibility of home loan interest and
other expenses will affect your specific tax situation, ask your tax
advisor. Or review a copy of IRS Publication 936. Lorem
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