Understanding Your Closing Costs on your Mortgage

 

It is important to understand each fee that you are being charged on your loan. There should be no surprises. Nowadays so many safeguards have been added to help protect the borrower but still ultimately it is your responsibility to know what is going on. Please see my tutorial on what a typical estimate in Florida should look like. 

 

 

 

rightSettlement costs

There are so many different charges involved in buying a home, it is important to know what to expect at the settlement. Your lender is required to give you a Good Faith Estimate (GFE) of your settlement costs within three business days of your loan application. Once you get it, review the charges below to avoid any surprises when you sit down to close on your loan. With the new Good Faith estimate of 2010, it is your lenders responsibility to give a proper quote of the lender fees, the title company fees and the transfer fees of the state.

 

TheNewGFE

HUD-1SettlementStatement

There are three basic categories of settlement costs:

  • Fees to get a mortgage. This includes lender fees and points, as well as a host of other charges involved in obtaining and processing your loan. Points are an upfront charge expressed as a percent of the loan amount (e.g., 1 point is 1 percent of the loan) to increase the lender's effective yield on a loan.

Specific lender fees can include:

    • Loan Origination Fee. This is a charge for your lender's work in evaluating and preparing your mortgage loan.
    • Application Fee – This charge covers the initial costs of processing your loan application and obtaining your credit report.
    • Appraisal Fee – Your lender will need an opinion from an independent appraiser of the market value of the home you wish to purchase.
    • Survey – This fee goes to a surveying firm who will verify that your lot has not been encroached upon by any structures since the last survey conducted on the property and to ensure that the home and other structures and legally where the seller says they are.
    • Mortgage Insurance – A lender may require this type of insurance for buyers who make a down payment of less than 20 percent of the value of the house. The policy covers the lender's risk in the event the buyer fails to make the loan payments. Premiums are typically paid annually from an escrow or reserve account, or in a lump sum at closing.
    • Homeowner's Insurance Insurance that protects property against loss caused by fire, some natural causes, vandalism, etc., depending on the terms of the policy. Also includes coverage such as personal liability and theft away from home. Your lender will expect you to have a policy in effect by closing.
  • Fees to establish and transfer ownership of the property. Your lending institution is not likely to give you a loan on a house unless you can prove that the seller owns the property you want to buy. This is where title search and title insurance fees come into play. A title agent will verify that the seller is, indeed, the owner of the property and issue a title insurance policy to guard the lender against any errors that could have occurred in the searching process. The cost of the policy is usually based on the loan amount. There may also be attorney, escrow, courier fees and other charges involved in the settlement process.

Title Companies and Closing Agents Play a Key Role in Providing Good Service:

 

Title Companies and Closing Agents are determined by the contract if you are purchasing or by the owner of the home if you are refinancing. It is important to pick a title company with a firm commitment to service.

 

 

  Fees to state and local governments. These fees include transfer, recordation and property taxes collected by local and state governments. Your taxes based on the assessed value of the home, which you pay for community services such as schools, public works, and other costs of local government. Taxes can often be paid as a part of your monthly mortgage payment.  

 

 

During the passed several years I have come across several bad title companies who didn't understand the true meaning of customer service. Many are spoonfed by banks selling foreclosures and have no concept of service. If you are purchasing a foreclosure, please keep this in mind. Expect fees to be higher than normal and service levels to be lower. Sometimes the poor service of a bad closing agent can delay a closing.

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